Every trade can lose. The goal of risk management is not to avoid losses. It is to keep each loss small enough that a bad week stays a bad week.
Position size
Position size is how much money goes into one trade. With $1,000 in your account and $100 per trade, each trade is 10% of the account. If a trade's stop loss is 4% below the entry, hitting it costs about $4 plus fees. Smaller size means smaller losses, and smaller gains.
Losing streaks happen
A method that wins 6 trades in 10 will still have runs of 4 or 5 losses in a row. Plan for the streak before it starts. If five losses in a row would make you want to quit, your size is too large for you.
Win rate is not the whole story
A high win rate can hide a problem. Ten wins of $10 are undone by one loss of $100. Look at the size of the average win and the average loss together, and at the largest drop from a high, called the drawdown. Past results, including backtests, do not tell you what will happen next.
Costs add up
Each trade pays exchange fees, and fast markets add slippage, which is the gap between the price you expected and the price you got. Many small trades can lose money to costs alone.
Leverage
Leverage borrows to make a position bigger. At 10x, a 10% move against you can wipe out the whole position. If you are new, trade without it.
When to pause
- You hit your daily loss cap.
- You are changing your setup and want a clean start.
- You don't understand why trades are happening.
- Markets are moving wildly and you feel the urge to chase.
- You may need the money soon.
Pausing costs nothing. Pause All stops new trades at once, and you can turn your profiles back on whenever you are ready.
Only trade with money you can afford to lose.