When traders talk “edge,” most point to entries. Pros point to risk. Your risk process determines whether a good idea compounds or slowly bleeds out. Here’s a crisp, battle-tested playbook you can paste into your journal today.
1) Define risk in R, not dollars
- Pick a fixed risk per trade (e.g., 0.5–1% of account or 1R).
- Judge results in R-multiples (e.g., +2R, –1R). It keeps psychology clean and performance comparable across markets.
2) Position size = math, not mood
Position size = (Account Risk in €/$) ÷ (Stop Distance × Value per tick/point)
- Example logic: risking €100 with a 5-point stop and €2/point value → 10 contracts/shares/units. Compute before the trade. If size looks scary, the stop is too tight or the setup isn’t worth it.
3) Put stops where the idea is wrong
Stops go at invalidation, not at a round number. Use structure (swing high/low, VWAP bands, key volume nodes) so a normal wiggle doesn’t eject you—but a broken thesis does.
4) Pre-commit your daily and weekly brakes
- Daily max loss: 2–3R. Hit it? Stop trading.
- Weekly circuit breaker: if you end two days at max loss or hit –5R on the week, downshift size or stand down. Your future self will thank you.
5) Never add to losers (scale winners instead)
Adding to a loser increases risk while your edge is worse. If you scale, do it into strength after partial take-profit (e.g., trim at +1R, trail the rest).
6) Asymmetric targets
Don’t take 1:1 trades unless your hit rate is extraordinary. Seek ≥2R when structure allows. Small, contained losses + occasional larger wins = equity curve that breathes but rises.
7) Track the risk metrics, not just P&L
Log:
- R per trade/day/week
- MAE/MFE (max adverse/favorable excursion)
- Rule breaks (sizing, stop moving, revenge trades) Trends here expose leaks faster than raw P&L.
8) A 30-second risk checklist
What breaks the idea? (exact price = stop)
Risk per trade set to 0.5–1% / 1R
Target offers ≥2R (or skip)
Position size calculated from the formula
Daily max loss line in the sand
No adding to losers. Scale only after +1R
Journal the result in R