Position Sizing: The 1% Framework
Risk a fixed small fraction — commonly 1% of account — per trade idea. Size = (account × 1%) / (entry − stop distance). A $10,000 account risking 1% with a $2 stop distance trades 50 shares, period. This single formula removes the 'how much do I buy' emotion and guarantees no single trade matters much — which is the point.
Stops and Risk-Reward
Place stops where your idea is objectively wrong (beyond the level, the pattern's extreme, or a volatility multiple like 2×ATR) — never at a round dollar amount of pain. Then demand asymmetry: risking $1 to make $2+ means 40% winners still profit. Most retail traders run the inverse — quick small wins, occasional catastrophic losses — which is how accounts with winning records still bleed to zero.
Drawdown and Correlation Math
Losses compound asymmetrically: -20% needs +25% to recover; -50% needs +100%. The 1% rule exists so a 10-loss streak (which will happen) costs a recoverable ~10%. Watch correlation too: five tech longs is one big trade wearing five costumes. Cap total simultaneous risk (e.g. 5%) and treat correlated positions as a single exposure.