Protect the downside
Size risk first, place invalidation logically and survive losing streaks.
01
Invalidation comes first
A stop should sit where the trade thesis is no longer valid—not where the loss happens to feel comfortable. Find that level first. If the required stop creates too much monetary risk, reduce the position size or skip the setup.
02
Risk a fixed amount
Choose the maximum percentage or cash amount you are prepared to lose before entering. Position size equals the amount at risk divided by the distance from entry to stop. This keeps a wider technical stop from silently creating a larger account loss.
03
One trade proves nothing
A good process can produce a loss and a poor process can produce a win. Judge a method across a meaningful sample, record execution errors and avoid increasing risk simply because the last few trades succeeded.
Practice exercise
Using a hypothetical £10,000 account and 0.5% maximum risk, calculate the cash at risk. Then calculate position size if the stop is 4% away from entry.
Knowledge check
With a £10,000 account and 0.5% risk, how much can be lost on the trade?
£50. With a 4% stop distance, the hypothetical position size would be £1,250 before accounting for fees and slippage.
Ready to continue?
Mark this lesson complete
Do this after reading the lesson, completing the exercise and checking your answer.