Risk management

Risk management is everything you do to make sure no single trade, day or streak can do serious damage. It doesn't aim to avoid losses — losses are part of trading — but to keep them small and predictable.

Typical layers:

• per trade: a stake that is a small fixed share of the balance (position sizing);
• per day: a loss limit and a maximum number of trades, after which you stop;
• per account: only money you can afford to lose, and a drawdown level that triggers a pause and a review;
• per situation: rules for news, unfamiliar instruments and emotional states.

The main misunderstanding is that good risk management makes a losing method profitable. It can't. If a strategy's expected value is negative — as it is for any 50/50 guess at a payout below 100% — risk management only slows the decline. Its job is to keep you in the game long enough for a genuine edge, if you have one, to show itself.

On Sky Trade a single trade can never lose more than its stake, which helps, but stakes add up quickly. Risk per trade and the entry on drawdown show how fast that happens.