Protect the account.
Preserve the edge.
Build a complete risk operating system—from position sizing and portfolio exposure to expectancy, drawdown rules, and post-trade review.
Educational material only. Validate calculations against your broker contract specifications.
1R
Known
Open risk
Capped
Daily stop
Written
THE CURRICULUM
Eight controls between you and ruin
Work in order. Each module adds a layer to the same operating system.
Foundation
Think in risk units
Define 1R—the amount you accept losing—before comparing trades, systems, or account sizes.
- Set account risk before entry.
- Record every result as an R-multiple.
- Judge execution separately from outcome.
Sizing
Fixed fractional risk
Risk a stable percentage of current equity so exposure contracts during drawdown and compounds during growth.
- Start between 0.25% and 1% while validating an edge.
- Recalculate from current equity.
- Never use conviction as a sizing input.
Stops
Let invalidation control size
Place the stop where the trade thesis fails, then calculate size from that distance—not the other way around.
- Size = risk amount / stop distance.
- Include spread, fees, and slippage.
- A wider valid stop requires a smaller position.
Conditions
Adjust for volatility
Normal risk can become abnormal exposure when ranges, gaps, and spreads expand.
- Compare the stop with ATR or session range.
- Reduce risk around major events.
- Do not reuse one lot size across symbols.
Portfolio
Control correlated exposure
Three positions driven by the same currency or index can behave like one oversized trade.
- Group trades by shared risk factor.
- Cap total open risk, not only trade risk.
- Treat correlated setups as one risk idea.
Edge
Use expectancy, not win rate
A system can lose often and remain profitable when average wins sufficiently exceed average losses.
- Expectancy = win rate × average win − loss rate × average loss.
- Measure over a meaningful sample.
- Include costs and rule-breaking trades.
Growth
Treat Kelly as a ceiling
Kelly estimates a theoretical growth-optimal fraction, but estimation error makes full Kelly too volatile for most traders.
- Use clean historical data.
- Prefer quarter- or half-Kelly.
- Cap the result with personal and firm limits.
Protection
Build drawdown circuit breakers
Pre-commit to smaller risk and mandatory pauses before a difficult session becomes account damage.
- Define daily and weekly loss limits.
- Cut risk after a losing cluster.
- Restore size only after process recovery.
Risk should compress as pressure rises
A circuit breaker is a staircase down in exposure—not an emotional switch from normal size to zero after the damage is done.
Losses and recovery are asymmetric
A 50% loss needs a 100% gain to return to breakeven. Protecting the downside preserves both capital and decision quality.
-10%
requires
+11.1%
-20%
requires
+25%
-30%
requires
+42.9%
-50%
requires
+100%
PRACTICE LABS
Turn rules into numbers
Change the assumptions. Observe how small changes in risk, stop distance, and payoff reshape the result.
Position Size Lab
Use the value lost per point for one unit, contract, or lot. Confirm broker specifications before placing a trade.
Maximum planned loss
$100.00
Calculated position
2
units / contracts / lots, based on your point-value input
Expectancy Lab
Model the long-run value of your system in R. This is a planning estimate, not a promise of future results.
Expectancy per trade
+0.35R
Break-even win rate
33.3%
Projected sample
+35.0R
Before entry
Map invalidation, calculate size, check correlated exposure, and know the exact cash loss.
During the trade
Never widen the stop to preserve hope. Only reduce exposure when the original thesis changes.
After exit
Record execution quality, result in R, fees, screenshot, emotion, and the rule you will repeat or correct.
Pre-trade checklist
Read it before every session. A rule remembered after the loss is only an observation.