Managing risk is one of the most important parts of consistent trading. Rather than focusing only on potential profits, it’s critical to size trades properly so that losses remain controlled.
How Risk Is Determined
The Invalidating Swing (Stop Placement)
Stops are placed beyond the price swing that would invalidate the trade idea. This ensures the trade is only active as long as the original thesis remains valid.A Fixed Capital Risk
Instead of risking an arbitrary amount, traders often decide on a fixed dollar risk per trade (for example, $300). This keeps losses consistent and predictable.
Important Notes
Stop sizes may vary depending on volatility, time of day, or session.
Even though stop sizes can change, the capital risk per trade should remain consistent as a percentage of the account.
If a stop is too large for your fixed risk, the trade may not provide a valid risk-to-reward ratio. In these cases, it may be better to skip the trade rather than force it.
⚠️ Disclaimer: This information is provided for educational purposes only and does not constitute financial advice. Always assess your own risk tolerance and trading plan before entering any position.