- Define cash risk before calculating a position.
- Recognise concentration and correlation risk.
- Create a drawdown response instead of improvising after losses.
Risk is the amount you can actually lose
A percentage of account balance is only useful when it is converted into a cash amount. That amount should account for the distance to invalidation, fees, spread, slippage and the possibility of a gap. If you cannot explain the maximum planned loss in the account currency, the position is not fully specified.
Some markets can move faster than an order can execute. A stop is an instruction, not a guaranteed exit price. That is why the amount you choose should leave room for uncertainty and why leverage should be treated cautiously.
Many positions can still be one bet
Holding several assets does not automatically diversify risk. Multiple tech stocks, several altcoins or trades all tied to the same currency can respond to the same event. Correlation changes over time, especially during stress.
Group positions by common driver and set a portfolio-level limit. It is better to discover that ten small positions share one risk before an event than after the account moves together.
- Single-position risk
- Open risk across all positions
- Common sector, currency or protocol driver
- Liquidity and gap risk
- Counterparty and platform risk
Drawdown rules prevent emotional escalation
Decide in advance what you will do after a losing streak or a drawdown: reduce size, pause, review execution, or stop until a condition is met. A pause is not failure; it is a way to protect decision quality when frustration is high.
Do not increase size to recover a loss. The market does not know your previous result, and a larger position changes the risk of the next decision without improving the evidence.
A one-percent illustration
An account of 5,000 with a 1% planned risk has a cash risk budget of 50 before costs. If the entry-to-invalidation distance requires 100 units of a position, the size is based on that 50—not on how confident the setup feels.
Carry these four ideas forward.
- Set cash risk before size.
- Include fees, spread and slippage.
- Check shared drivers across positions.
- Write a drawdown response.
Three questions before the next tab.
Choose the answer that best matches the lesson. This is a memory check, not a market signal.
Before you move on
Is risking one percent always correct?+
No. It is an educational example, not a universal rule. Your capital, horizon, liquidity and local product rules matter.
Can a stop guarantee my loss?+
No. Gaps, fast markets and execution conditions can produce a different fill. Treat the planned loss as an estimate with a margin of safety.
Should I risk more after a winning streak?+
A winning streak does not prove that future risk should increase. Change size only through a pre-written, tested process.