Risk per trade

Every trading method has losing runs, even a good one. You can't choose when they come. What you can choose is how much each loss costs.

A fixed percent does three things:

• It makes the math knowable. If you risk 1% and your max loss is 8%, you know roughly how many full losses fit before the line.
• It keeps one trade from deciding the challenge. No single bad call can do much damage.
• It removes a decision under stress. You don't pick a size based on how confident you feel, which is usually when sizes get too big.

Varying your risk by feel tends to go wrong in one direction: bigger after losses, to win it back. That is how a normal losing run turns into a failed account.

Take a $25,000 account with a fixed 8% max loss. The loss line is $2,000 below the start, at $23,000. (A trailing max loss moves the line up after gains: see Trailing vs static drawdown.) On Runtiler, equity at the line ends the account, not only below it, so a loss that reaches exactly $2,000 ends it.

If you risk a fixed share of the starting size on each trade:

At 1%, the 8th full loss brings the account to exactly $23,000, and that ends it. At 3%, the 3rd loss would take $2,250, past the line, so the account ends partway into it.

Costs make these numbers a little smaller in practice: spreads, any commission and overnight fees all come off the balance.

Risk as a share of the current balance

If you risk 1% of your balance now rather than of the starting size, each loss is slightly smaller than the last. On the same $25,000 account, after 7 losses at 1% of the balance you would have about $23,302, and after 8 about $23,069, still above the line. The 9th would end it.

That's one more loss than the fixed-dollar version. It's not a big difference, but it slows a losing run down without any extra thought. The Risk % setting on the order ticket works this way: it is a share of your balance at the time.

Many challenges also have a daily loss limit. It is a percentage of the starting size, counted from where the day started at 00:00 UTC.

On the same $25,000 account with a 4% daily limit, the day's line is $1,000 below the day's start:

• At 1% risk ($250), the 4th full loss of the day reaches the line.
• At 2% risk ($500), the 2nd does.
• At 0.5% risk ($125), the 8th does.

So at 2% risk, two bad trades in one morning can end the day, or the account, depending on the rules. Daily loss limits explained goes through how the day's line moves.

A small risk can feel slow. An 8% target at 0.5% risk looks like a lot of trades. But your winners don't have to match your losers in size.

Say you risk 0.5% ($125 on $25,000) and aim for twice that on winning trades ($250). The 8% target is $2,000:

• Each win adds $250 and each loss takes $125.
• If you win half your trades, every two trades net $125.
• Netting $2,000 then takes about 32 trades: 16 wins ($4,000) and 16 losses ($2,000).

That's more trades than a big bet, and that's the point. The account survives the losing runs that every method has, and the time to get there is something you can plan around. Check the challenge's time limit, if it has one, when you choose your risk.

There is no single right percent. A few questions help:

1. How many losses in a row have you had before? Look at your own history. Make sure your max loss fits at least twice that run at your risk.
2. How many losses does the daily limit allow? If it's two or three, that's a tight day. Consider a smaller risk.
3. Can you hold it calmly? If the dollar amount makes you watch every tick, it's too big.
4. Is your stop sound? A small risk with a stop placed for convenience doesn't protect you. Size from a real stop: see Position sizing.

Many traders settle between 0.5% and 1% on a challenge. Some go lower near the max loss line, to give themselves more room to recover.

Deciding on a number is the easy part. Some habits that help:

• Set it once. Put it in your plan before the session, not during a trade.
• Use Risk % on the ticket. It sizes the trade from your stop so the risk stays where you set it.
• Always use a stop. A trade without one has no defined risk. See Stop loss and take profit.
• Don't raise it to recover. After a loss, the same risk, or a smaller one, is the safer choice. Managing a losing streak has more on this.

The exact rules for the max loss and the daily limit are in Max loss and Daily loss limit.