Chapter 1 of 5: Why risk comes first
Chapter 1 of 5
Why risk comes first
You cannot control whether a trade wins. You can control what a loss costs.
Every trader has losing trades. Losing streaks of five, six or more in a row happen to everyone eventually, even with a sound approach. Risk management decides whether a streak is an annoyance or the end of your account.
The maths of recovery
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
Losses compound against you. A 50% drawdown needs a 100% gain to recover. Keeping losses small is not timid, it is what keeps you in the game long enough to improve.
Risk per trade
Most traders risk between 0.5% and 1% of their account per trade. At 1%, ten losses in a row is roughly a 10% drawdown: uncomfortable but recoverable. At 5% per trade, the same streak cuts the account by about 40%.
Key takeaways
- Losing streaks are normal, plan for them
- Drawdowns get harder to recover from the deeper they go
- Risk 0.5% to 1% of the account per trade
Check your understanding
After a 50% drawdown, what gain gets you back to break even?
Educational content only, not financial advice. Trading involves risk and you can lose money. Indicators describe market conditions, they do not predict outcomes.