Why Risk Management Matters
Risk management is the single most important skill a trader can develop. Without it, even the best trading strategy will eventually lead to account blowup.
The goal isn't to avoid losses — losses are an inevitable part of trading. The goal is to keep losses small and manageable so you can stay in the game long enough for your edge to play out.
The 1% Rule
A common guideline is to never risk more than 1-2% of your total account on a single trade. This means if you have a $50,000 account, your maximum loss on any trade should be $500-$1,000.
How to Calculate Position Size
- Determine your stop loss distance
- Calculate the dollar risk per share
- Divide your maximum risk by the per-share risk
For example, if you're buying a stock at $100 with a stop at $95, your risk per share is $5. With a $500 max risk, your position size is 100 shares.
Risk-Reward Ratio
Before entering any trade, calculate your risk-reward ratio. A minimum of 1:2 is a solid starting point — meaning for every dollar you risk, you target at least two dollars in profit.
Using JRNL to Track Risk
JRNL automatically calculates your risk metrics across all trades. Use the Risk Dashboard to monitor your average risk per trade, win rate at different risk levels, and overall portfolio heat.
JRNL is a journaling and self-reflection tool. It is not personalized investment advice and does not provide trade signals or market predictions.