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Risk Management 101
"Position sizing, stop losses, and why preserving capital is more important than making it."
The most important rule of longevity in trading is capital preservation.
The 1% Rule
Never risk more than 1% to 2% of your entire portfolio on a single trade. If you have a $10,000 account, a single losing trade should not cost you more than $100 to $200. This ensures that you can endure a streak of consecutive losses without ruining your account.
Asymmetric Risk/Reward
Aim for setups that offer at least a 1:2 Risk/Reward ratio. If you're risking $100, your realistic target should net you $200 or more. This mathematical edge means you can lose 50% of the time and still be a highly profitable trader over a series of trades.
Using AI to Size Positions
Trentarev provides AI-assisted risk models that evaluate market volatility. On days characterized by high volatility, position sizes should be scaled down automatically. Trust your systematic risk parameters over your emotional conviction.