Risk Management
Position sizing, loss limits and invalidation — the part of trading that decides whether you are still here in a year. Taught before entries, deliberately.
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Most trading education puts risk management at the end, as a chapter people skim after they have learned some patterns. That ordering is backwards, and it is expensive.
Risk management is not the boring part that protects the interesting part. It is the part that determines whether any edge you might develop ever gets a chance to show up in your results.
What you will learn
- Explain why survival is a precondition for edge, using the arithmetic of drawdown recovery
- Convert a risk percentage into a position size for any instrument
- Place a stop at a level that invalidates the idea rather than at a number that feels comfortable
- Write down a per-trade, per-day and per-week loss limit and know what you do when you hit it
- Express outcomes as R-multiples and calculate the expectancy and break-even win rate of a method
- Recognise when several positions share a driver, and cap total open risk accordingly
Prerequisites
- Trading Foundations, or equivalent familiarity with order types
Course contents
Module 1 — Why risk comes first
The arithmetic that makes risk management non-optional.
Why Risk Comes First
A 50% drawdown requires a 100% gain to recover. That asymmetry is why risk management is not the defensive part of trading — it is the part that determines whether any edge you have ever gets to compound.
8 min read
Module 2 — Sizing and invalidation
Turning a risk rule into a number of units and a stop level.
Position Sizing Explained
Position size is derived, not chosen. Once you fix a risk percentage and a stop level, the number of units is arithmetic — and any deviation from it is a decision to take more risk than you said you would.
9 min read
Stop-Losses and Invalidation
A stop belongs where your idea stops being true, not where your discomfort starts. Placing it by feel converts a defined risk into an arbitrary one and guarantees you are stopped out by noise.
8 min read
Module 3 — The arithmetic of survival
Drawdown recovery, expectancy and correlation — the maths that decides whether a rule book survives contact with variance.
Risk of Ruin and Drawdown Maths
Returns multiply rather than add, so a drawdown costs more to undo than it cost to create. Combine that with ordinary losing streaks and you get risk of ruin — the probability that normal variance, not bad analysis, ends the account.
13 min read
Risk/Reward and Expectancy
An R-multiple expresses every outcome as a multiple of what you risked. Once results are in R, any reward-to-risk ratio implies a break-even win rate, and expectancy tells you the average — never the next trade.
9 min read
Correlation and Portfolio Risk
Five positions risking 1% each are only five separate risks if they can lose on different days. When they share a driver, they are one 5% position wearing five tickers — and the sizing spreadsheet will never mention it.
9 min read