The structural rules that define a sustainable trading business.
PRINCIPLE 01
Protect Your Trading Capital
Your trading capital is your most important asset. Without capital, you cannot participate in future opportunities.
Imagine a trader has $10,000 and loses 50%. The account falls to $5,000.
To recover from $5,000 back to $10,000, the trader now needs a 100% return.
This illustrates an important principle: Large losses are disproportionately difficult to recover from. Protecting capital should therefore come before maximizing profits.
PRINCIPLE 02
Risk a Small Percentage Per Trade
One of the simplest ways to control risk is to limit how much of your account you are willing to lose on a single trade. For example, a trader might decide to risk approximately 0.5%–1% of account equity per trade.
If you have a $10,000 account and risk 1%, your maximum planned loss is $100. If the trade fails, the account becomes approximately $9,900. One loss does not significantly damage the account.
This allows you to take the next valid setup without feeling like you need to immediately recover the previous loss. The exact risk percentage should be appropriate for your strategy, experience, volatility, and financial situation.
PRINCIPLE 03
Position Sizing: Your First Line of Defense
Position sizing determines how large your trade should be. This is where many traders make a critical mistake: they decide how many lots to trade first, and place their stop-loss afterward.
A better process is the opposite. Start with your risk:
- 1. Account size
- 2. Maximum acceptable loss
- 3. Entry price & Stop-loss location
- 4. Distance between entry and stop
- 5. Appropriate position size
Your position size should be determined by your risk limit, not by how confident you feel about the trade. Confidence should never replace risk management.
PRINCIPLE 04
Stop-Losses: Accept the Trade Is Wrong
A stop-loss defines the point where your original trade idea is no longer valid. It answers a simple question: "At what price does my trading thesis become invalid?"
Once that level is reached, the trader exits according to the plan. The biggest mistake is moving the stop-loss farther away simply because you do not want to take the loss.
For example: You enter a trade with a planned $100 maximum loss. The market moves against you. Instead of accepting the loss, you move the stop farther away. Your $100 risk can suddenly become $200, $300, or more. This destroys the original risk structure of the trade.
PRINCIPLE 05
Risk-Reward Ratio
Risk-reward ratio compares the amount you are willing to lose with the potential profit of a trade. A favorable risk-reward structure can allow a strategy to remain profitable even when some trades lose.
Potential loss = $100
Potential profit = $200
Ratio = 1:2
For example, imagine ten trades: 4 winners × $200 = $800. 6 losers × $100 = -$600. Total = +$200. The trader only won 40% of the trades but still produced a positive result.
PRINCIPLE 06
Don't Risk More Because You Lost
This is one of the most dangerous psychological traps in trading. A trader loses a trade. Then thinks: "I just need one big trade to make it back." The next position becomes larger.
Another loss occurs. The trader increases the size again. This can quickly turn normal trading losses into a catastrophic drawdown, often associated with revenge trading.
Your next trade should be based on your system, not your previous trade. A losing trade does not increase the probability that your next trade will win.
PRINCIPLE 07
Protect Capital During Losing Streaks
Even a profitable strategy can experience losing streaks. A 55% win rate doesn't mean you win 5-6 out of 10 perfectly distributed. Random sequences happen. If your strategy cannot survive a normal losing streak, the problem may be your position sizing.
PRINCIPLE 08
Drawdown Management
Drawdown measures the decline from an account's peak value. Drawdowns are normal, but they become a problem when they affect objective execution. A better approach is to reduce risk when necessary and focus on stabilizing execution.
PRINCIPLE 09
Avoid Overtrading
A trader might risk only 1% per position but take 20 unnecessary trades in a session. Every trade should have a reason. If there is no valid setup, doing nothing is a valid trading decision.
PRINCIPLE 10
Understand Correlated Risk
Opening five positions that are all influenced by the same market factor means you aren't risking 1% five times—you are risking 5% on one single economic event. Always consider total exposure.
PRINCIPLE 11
Never Trade Money You Cannot Afford to Lose
Using money needed for rent, bills, or debt creates enormous psychological pressure. When losing a trade threatens essential needs, emotional decision-making becomes much more likely.
PRINCIPLE 12
Risk Management & Psychology
When position size is too large, every tick feels important. When risk is controlled, you can think clearly. A properly sized position allows you to say: "If this trade loses, it is simply one trade."
