Risk Management Basics

Risk management is not optional — it is the entire game. Technical analysis helps you find trades. Risk management is what keeps you alive long enough to profit from them.

The 1% Rule

Never risk more than 1–2% of your total account on a single trade. This is the professional standard. At 1% risk, you can lose 50 trades in a row and still have 60% of your account.

• $1,000 account → max $10–20 at risk per trade
• $5,000 account → max $50–100 at risk per trade
• $10,000 account → max $100–200 at risk per trade
• $50,000 account → max $500–1,000 at risk per trade

Position Size Formula

Position Size = (Account Balance × Risk%) ÷ (Stop Loss Distance %)

• Account: $5,000 | Risk: 1% = $50 | Stop Loss: 2% from entry
• Position size: $50 ÷ 0.02 = $2,500 notional exposure
• At 5x leverage → $500 margin required
• At 10x leverage → $250 margin required
• The leverage changes margin, not your max loss — max loss is always $50

Risk/Reward Ratios

Every trade should offer minimum 2:1 risk/reward. At 2:1, you only need to win 34% of trades to be profitable. Nezsig targets 3:1–5:1 on most signals.

• 1:1 R:R → Need 50%+ wins just to break even (after fees, you lose)
• 2:1 R:R → Need only 34% wins to break even — profitable with 40%+ wins
• 3:1 R:R → Need only 25% wins to break even — profitable with 35%+ wins
• 5:1 R:R → Need only 17% wins to break even — very profitable with 30%+ wins

Daily Loss Limit

Set a daily loss limit — the maximum you'll lose in a single day before stopping. Professionals typically use 3–5% of account as a daily limit.

1. 1Decide your daily limit before markets open (e.g., 3% of account)
2. 2Track losses in real-time
3. 3When daily limit hit: stop trading immediately, close the platform
4. 4Do not return until tomorrow — bad days create bad decisions that compound
5. 5Review losing trades the next day with fresh eyes

Drawdown Math

Understanding what it takes to recover from a drawdown is the single most motivating reason to protect capital:

• 10% loss → need 11% gain to recover (manageable)
• 20% loss → need 25% gain to recover (difficult)
• 30% loss → need 43% gain to recover (very hard)
• 50% loss → need 100% gain to recover (takes years)
• 75% loss → need 300% gain to recover (nearly impossible)

The Psychology of Risk

Risk management feels restrictive when you're confident. That's exactly when it's most important. Overconfidence is the market's favorite pattern — it reliably extracts money from traders after winning streaks.

• Never increase size to recover losses — this is revenge trading
• Never decrease size because you're scared of a specific trade — if signal is valid, standard size
• Your position size should be the same whether you feel certain or uncertain
• Treat risk management as your most sacred rule — never negotiate it away