Risk Management
The mathematics of survival. Position sizing, stop placement, and protecting your capital.
Position Sizing
How much to risk on each trade
The 1% Rule: Never risk more than 1% of your account on a single trade.
Formula: Position Size = (Account × Risk%) ÷ (Entry - Stop)
Example:
- Account: $100,000
- Risk: 0.5% = $500
- Stop Distance: 20 points ($400/contract on NQ)
- Position Size: $500 ÷ $400 = 1.25 contracts → Round to 1
Exit Strategy
Multi-target approach for optimal returns
1× Stop
Close 25%
Move stop to breakeven
2× Stop
Close 25%
3× Stop
Close 25%
Trail
Final 25%
Trailing stop
Drawdown Recovery
Why limiting losses matters more than chasing gains
| Drawdown | Recovery Needed |
|---|---|
| -10% | +11.1% |
| -20% | +25.0% |
| -30% | +42.9% |
| -50% | +100.0% |
This is why the CYPH3R system targets maximum drawdowns under 10%.
The Psychology of Trading
The mental game that separates survivors from statistics
Losses Are Business Expenses
Every business has operating costs. A restaurant buys ingredients, a retailer pays rent. Trading is no different—losses are the cost of doing business. As Larry Williams put it: "Losers are just the rent we pay to the market for the opportunity to catch winners."
The moment you accept that losses are inevitable, you stop fighting reality and start managing it. You can't win 100% of the time. No one can. The goal isn't to avoid losses—it's to make sure your wins outweigh them.
The Market Doesn't Care About Your Opinion
Your ego is your enemy. The market owes you nothing. It doesn't know your position, doesn't care about your mortgage, and won't reverse because you're "sure" it should. ICT teaches: "Trade what you see, not what you think."
When a trade goes against you, the hardest but most profitable skill is accepting you were wrong—quickly. The best traders are wrong often. They just don't stay wrong for long.
The 10-Trade Mentality
Never judge your trading by a single result. Think in batches of 10, 20, 50 trades. A loss means nothing in isolation. A win means nothing in isolation. Only the aggregate tells the true story of your edge.
If you flip a coin 10 times and get 7 heads, you wouldn't conclude the coin is broken. Trading works the same way. Your system will have losing streaks—sometimes 5, 6, even 9 losses in a row. This is normal. This is math, not failure.
Patience: The Edge Within The Edge
The best trade is often the one you don't take. Overtrading—forcing setups that aren't there—destroys more accounts than bad analysis ever could. As ICT emphasizes: "You only need 10-15 pips a week to change your life. Wait for the sniper shot."
Boredom isn't a trading signal. The market runs 24 hours, but your edge appears in specific windows. If the setup isn't there, do nothing. Protecting capital by not trading is still a winning decision.
Fear & Greed: The Twin Destroyers
Fear makes you cut winners too early and avoid valid setups after losses. Greed makes you hold losers too long and over-leverage after wins. Both come from the same place: emotional attachment to outcomes.
The antidote is process-focus. Judge yourself on whether you followed your rules, not on whether the trade made money. A good trade that loses money is still a good trade. A bad trade that makes money is still a bad trade—and will eventually catch up with you.
"The market is a device for transferring money from the impatient to the patient." — Warren Buffett
Educational Disclaimer: This content is for educational purposes only and not financial advice. Trading futures involves substantial risk of loss.