Risk Management
7 Risk Management Rules Worth Writing Down Before Your Next Trade
Rules only work if they exist somewhere besides memory. These are 7 worth putting on paper before the next trade, not after a bad one.
Most traders can describe their risk management in a sentence when asked. Far fewer have actually written the specific numbers down anywhere.
That gap matters more than it sounds like it should. A rule that only lives in memory gets renegotiated the moment a position is open and red. A rule written down ahead of time doesn't get a vote in the moment.
A max loss per trade, in dollars, decided before entry
Percent risk is the common way to say it, but the figure that actually stops a hand from hovering over an "add" button is the dollar number. $180. Not "1% of the account." $180.
Deciding the exact number before the trade is open removes the on-the-fly negotiation that starts once a position is already red.
A daily loss limit that ends the session, not just the streak
A loss limit that only pauses trading for an hour still lets the same day claw back into a deeper hole once the cooldown ends. A hard daily stop, hit it and the platform closes for the day, protects against the version of the trader who's already proven today isn't going well.
A max number of open positions at once
Every additional position adds monitoring load, correlation risk, and one more thing that can go wrong while attention is split. A written cap, even a generous one, forces a choice between the next setup and one already on the books instead of adding both by default.
A rule for what happens after 2 or 3 losses in a row
This is where size creep and revenge trading start, and it's also the easiest point to write a rule for in advance because it's completely predictable. Cut size in half. Take the rest of the session off. Whatever the specific rule is, decide it now.
A rule for reducing size around major news events
CPI prints, FOMC decisions, and earnings reports widen spreads, spike volatility, and can gap a stop straight past its intended level. A standing rule, cut size in half or skip the trade entirely inside a defined window around scheduled news, removes the need to reassess it fresh every single time one shows up on the calendar.
A rule for correlated positions
Three positions that are really one trade wearing three different tickers deserve one risk budget, not three separate ones. Treat correlated positions as a single risk unit for sizing purposes, and the kind of accidental concentration that doesn't show up until everything moves the same direction at once gets caught early instead of late.
A written line for when the plan gets broken anyway
Every trader breaks their own rules eventually. The ones who recover fastest already know what happens next, a mandatory review before the next trade, a size cut for the rest of the week, whatever it is for them specifically. Deciding the consequence in advance means it isn't a debate with yourself in the exact moment it's needed most.
None of these rules are complicated. Writing them down, in specific numbers, in a place that gets looked at before the trade instead of after, is the actual habit worth building.