Section 4 · Momentum Basics
Risk Management Fundamentals
Protect your capital first — profits will follow
The Only Rule That Keeps You in the Game
Risk management is the foundation of every professional trader's career. Without it, even the best pattern recognition and catalyst analysis will eventually lead to a blown account. The core rule is simple: never risk more than 1-2% of your total trading account on any single trade. If your account is $10,000, your maximum loss per trade is $100-$200. This rule feels restrictive at first, but it is what allows you to survive the inevitable losing streaks without catastrophic drawdown. The second rule is a daily maximum loss limit — typically 3-6% of account. When you hit your daily max loss, you stop trading for the day. Full stop. No exceptions. This rule prevents the most common account killer: revenge trading — taking increasingly reckless trades after a loss in an attempt to "make it back." The third concept is knowing when to reduce size: if you've had 2-3 consecutive losing trades, cut your position size in half until you're back in a rhythm.
3 things to know
Never risk more than 1-2% of total account on any single trade — this is non-negotiable
Daily max loss limit of 3-6% of account: when hit, stop trading for the day immediately
After 2-3 consecutive losses, cut position size in half until you recover your rhythm
Dive Deeper
1-2% Rule per Trade
On a $10,000 account, max risk is $100-$200 per trade. This lets you take 50-100 consecutive losing trades before losing half your account — giving you time to improve.
Daily Max Loss Limit
Set a hard daily stop of 3-6% account loss. When you hit it, close the platform and walk away. This is not weakness — it's the discipline that separates professionals from gamblers.
Never Revenge Trade
After a loss, your emotional brain wants to "get it back." This leads to bigger positions, worse setups, and bigger losses. The only recovery from a bad day is to stop, reset, and return tomorrow.
Key vocabulary — tap each card
Practice
Risk Management: True or False?
Statement 1 of 4
Risking 10% of your account on a single trade is acceptable if you are very confident in the setup.
Did you know?
The most common mistake of new traders is not having a daily max loss rule — and the #1 cause of blown accounts is a single catastrophic revenge-trading session. Studies of retail brokerage data show that the majority of large single-day losses occur after the trader's first 2-3 losses of that day.