Risk Management & Sizing

The risk amount should be based on YOUR personal risk tolerance… I do NOT believe that the risk amount should be based on a fixed % of the account size… that's a flawed rule… instead, the rule of thumb is to pick an amount where you can lose 9 trades in a row and still take the 10th trade with discipline!

The vast majority of flaws stem from improper position sizing.

Risk a fixed amount that you are comfortable with on every single trade you take… the rule of thumb is to pick an amount where you can lose 9 trades in a row and still trade the tenth setup with discipline… no trader is immune to losing streaks… many traders will lose 3-4 trades in a row and go on tilt which changes the trajectory of their journey… by standardizing risk, it prevents losing too much on any given trade… you change your lot size relative to the specific setup's drawdown… for example, let's say you are comfortable risking $300 per trade using ES futures:

• If your stop loss on a setup is 5 points, you'd use 12 micros
• If your stop loss on a setup is 7 points, you'd use 8–9 micros
• If your stop loss on a setup is 10 points, you'd use 6 micros
• If your stop loss on a setup is 15 points, you'd use 4 micros

And so on… by doing so, you are standardizing your risk across all setups DESPITE each setup presenting different drawdown amounts.

Many traders just use a fixed contract size REGARDLESS of the setup… this is very very flawed! Because if one setup risks 3 points and the next setup risks 6 points, you're literally risking DOUBLE on the second trade if you use the same amount of contracts… That is a serious problem! Because it REQUIRES a high win % to stay afloat.