Risk management

Risk management tends to be talked about as professional virtue. It is really the most technical part of trading: a handful of calculations and a handful of rules written down, with most of the value sitting in the writing down, before the rules are needed. This section collects the articles on that.

The main line runs through three of them. First, placing a stop — where it goes belongs to the chart, not to the amount you would like to lose. Second, working out position size from the risk you allow and the distance to that stop, the calculation that turns the first two into a number of lots. Third, money management at account level: the limit per trade, the limit per day, and the arithmetic of recovering from a loss. Read those three together; they are three steps of one process.

The rest of the section is about what breaks that process. Slippage and price gaps push a loss past the figure you set. The pull to hold losers and chase losses makes people abandon rules they wrote themselves. Account security and operational mistakes cause damage that has nothing to do with any market view. And a trading journal is the tool that catches all three, because nobody sees their own patterns from memory.