1. Define context before risk
Write the market condition, setup purpose and reason the idea is being considered. A risk number cannot make an undefined setup valid.
2. Mark invalidation before the stop
State the price or market condition that proves the idea wrong. Place the stop beyond that logic with room for normal movement—not at an arbitrary distance.
3. Set the maximum accepted loss
Choose the maximum account amount or percentage you are prepared to lose if the idea fails. Reduce it when volatility, liquidity or execution quality is uncertain.
4. Calculate position size last
Use maximum accepted loss and logical stop distance to calculate size for the specific instrument. Never select a preferred size first and squeeze the stop to fit it.
5. Count combined exposure
Review open positions that share the same market, currency or directional driver. Several individually small trades can become one concentrated risk.
6. Include trading friction
Account for spread, commission, slippage and event risk. Skip when the planned loss no longer represents realistic execution.
7. Write daily-loss and skip rules
Set a session loss boundary and list the missing conditions that force no trade. A useful rule must be able to stop an otherwise tempting click.
8. Review process, not only P&L
Record planned versus actual risk, stop changes, size changes and whether the written rule was followed. Fix the repeated process error before changing the whole strategy.
Use the tools, then inspect the complete process
Use the free position size calculator only after context, invalidation, stop distance and maximum loss are defined. Save the complete decision in the trading plan builder and use the risk-management worksheet to review exposure and rule adherence.
Trading Master connects risk control with market structure, technical analysis, psychology, execution and journal review. It is an English, self-paced education e-book—not a signal service, individualized advice or a promise of results.