Risk per trade
Most beginners pick the trade first and the size second. Professionals do it the other way round: the size is decided by how much of the account they are willing to lose if they are wrong, and that number is chosen before the chart is even open.
The risk budget
A risk budget is the fixed share of your account you accept losing on a single idea. It is usually expressed as a percentage — 0.5%, 1%, 2% — and it is fixed in advance so that it cannot be renegotiated in the moment, which is exactly when your judgement is worst.
Why a percentage and not a fixed cash amount? Because a percentage shrinks automatically when the account shrinks. Lose money and your next position gets smaller on its own, which is what stops a bad week turning into a terminal one.
How position size follows from it
Once the risk budget and the stop distance are known, the position size is arithmetic, not opinion:
Position size = (account × risk %) ÷ (stop distance × value per point)
An example. A $5,000 account, 1% risk, means $50 at stake. If the stop sits 25 points away and each point is worth $1 per unit, the size is 50 ÷ (25 × 1) = 2 units. Move the stop to 50 points and the size halves to 1 unit — the loss stays $50 either way.
That is the whole point: the stop distance changes the size, never the risk. A wider stop is not more dangerous if the size is adjusted. A wider stop with unchanged size is how accounts die.
What a losing streak actually costs
Streaks are not rare. If your approach wins 50% of the time, a run of five losses in a row shows up roughly once every 32 sequences — that is a normal month, not bad luck. Here is what a streak does at different risk levels:
- 1% per trade: five losses in a row → account down about 4.9%. Recoverable without changing anything.
- 5% per trade: five losses → down about 22.6%. You now need a 29% gain just to get back to level.
- 10% per trade: five losses → down about 41%. You need a 69% gain to recover, and most people start gambling long before that.
Notice the asymmetry: losses compound against you faster than gains compound for you. A 50% drawdown requires a 100% gain to undo. This is arithmetic, not psychology, and no amount of confidence changes it.
Choosing your number
There is no universally correct figure, but there is a sane way to pick one. Ask: what is the worst losing streak I can accept without abandoning the method? Then divide the drawdown you could tolerate by that number of losses. If you can stomach a 10% drawdown and you expect streaks of up to eight, your risk per trade is somewhere near 1.25%.
Most people who trade full time land between 0.25% and 1%. Anyone advertising 5% or 10% per trade is selling excitement, not longevity.
Common ways this goes wrong
- Averaging down. Adding to a losing position converts a defined risk into an undefined one. Your risk budget was $50; now it is whatever the market decides.
- Correlated positions. Three trades at 1% each on gold, silver and a mining index is not 1% risk three times — it is close to 3% on one idea wearing three hats.
- Revenge sizing. Doubling up after a loss to “get it back” is the single fastest way to turn a drawdown into a blow-up.
- Ignoring costs. Spread, commission and overnight swap come out of the same budget. On short-term trades they are not a rounding error.
The one habit worth building
Write the risk budget, the stop level and the resulting size down before entering — on paper, in a note, anywhere outside your head. If a trade cannot be expressed in those three numbers, it is not a plan, it is a hope. And a hope has no position size.