Position sizing, stop-loss strategies, risk-reward ratios, portfolio allocation, and the Kelly Criterion. The guide to not blowing up your account.
Risk management is the single most important skill in trading — more important than entries, indicators, or market knowledge. A mediocre strategy with excellent risk management will outperform a brilliant strategy with poor risk management every time. Your primary job as a trader is to survive long enough for your edge to play out.
The core principle: protect your capital at all costs. You can always make back losses from a preserved account, but you can't trade at all from a blown account. A 50% loss requires a 100% gain to recover. A 90% loss requires a 900% gain. The math of losses is brutal.
Never risk more than 1-2% of your total account on a single trade. This means if your account is $10,000, your maximum loss per trade should be $100-200. This ensures that even a string of 10 consecutive losses only costs 10-20% of your account — painful but survivable.
Position size = (Account × Risk%) / (Entry - Stop Loss). If your account is $10,000, you risk 1% ($100), and your stop loss is 5% below entry, your position size is $100 / 0.05 = $2,000.
Pro Tip: During drawdowns, reduce your risk percentage. If you've lost 10% of your account, drop to 0.5% risk per trade until you recover. This prevents the emotional spiral of increasing risk to "make it back."
Risk/Reward Ratio (1:3 Example)
Only take trades where the potential reward is at least 2x the risk (2:1 R:R). This means if your stop-loss is $100, your target should be at least $200. At 2:1 R:R, you only need to win 34% of trades to break even.
Higher R:R ratios (3:1, 5:1) allow lower win rates while remaining profitable. The best setups in crypto often offer 3-5:1 R:R at key support/resistance levels. Be patient and wait for these setups rather than forcing mediocre trades.
Core holdings (60-80%): BTC and ETH in cold storage. Long-term, never leveraged, DCA'd over time.
Trading capital (10-30%): Active trading account. This is the money you risk — and the only money that should ever touch leverage.
Speculation (5-10%): Altcoins, new projects, high-risk plays. Money you can afford to lose completely.
Never use money you can't afford to lose. Never trade with borrowed money. Never let trading capital exceed what you'd be comfortable losing entirely.
The biggest risk isn't the market — it's yourself. Common emotional traps: (1) Revenge trading — increasing size after losses to "make it back." (2) FOMO — entering late because you're afraid of missing out. (3) Moving stop-losses — widening stops to avoid taking a loss. (4) Overtrading — taking mediocre setups out of boredom.
Solution: have a written trading plan with specific rules. Follow it mechanically. Journal every trade. Review weekly. Treat trading as a business with processes, not a casino with hunches.
The fundamentals of spot trading — market orders, limit orders, order books, slippage, and how to execute trades efficiently on any exchange.
Advanced guide to crypto futures — perpetual contracts, funding rates, mark price vs last price, and how to manage leveraged positions.
Understanding leverage — margin requirements, liquidation mechanics, position sizing for leveraged trades, and why most leveraged traders lose.