Academy / Risk
Risk Management Basics
Protect downside first. These simple rules and formulas keep you in the game long enough to improve.
Non‑Negotiable Rules
- Define single‑trade risk as a fixed dollar amount (e.g., $10–$25 starting).
- Set a max daily loss. Stop trading when hit.
- Place stops at invalidation, not “where it feels right.”
Position Sizing Formula
| Input | Example |
|---|---|
| Single‑trade risk ($) | $60 |
| Stop distance | 12 ticks |
| Value per tick | $1.25 |
| Size = risk / (stop*value) | $60 / (12*$1.25) = 4.0 → 4 contracts |
Round down size. If size is zero, widen stop only if it still fits the setup, or skip the trade. New to ES/MES or NQ/MNQ? Read the futures market guide for tick values and hours.
Daily Loss Plan
- Max daily loss = 3–5x single‑trade risk.
- After 2 consecutive losses: pause and review.
- Hit daily loss: stop. Review, tag mistakes, reset.
Examples
| Scenario | Risk ($) | Stop | Tick value | Size |
|---|---|---|---|---|
| Micro futures trend pullback (MES) | 60 | 12 ticks | $1.25 | 4 contracts |
| Forex major pair (EURUSD) | 50 | 20 pips | $1 per pip (per 0.1 lot) | 0.25 lot |
| Equity day trade | 100 | $0.50 | $1/share per $1 move | 200 shares |
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