Writing your own risk management rules

You now have the tools: the 1% rule, the technical stop, position sizing, the risk-reward ratio, expectancy, drawdown, correlation and effective leverage. One step is left, the one that separates knowing from doing: turning all of it into written rules that you follow without renegotiating them on every trade.

Why write your rules down

During a session, you make decisions under pressure, with real money on the line. It is the worst moment to think about how much to risk or when to stop. A rule written in a calm moment, on a Sunday evening, is almost always better than a decision made in the heat of the moment after two losses.

Writing your rules down has another benefit: you can check whether you follow them. A vague rule like “I don't risk too much” cannot be checked. A rule with a number, like “I never risk more than 1% per trade”, can be checked in a second in your history.

The five basic rules

1. Risk per trade: the maximum percentage of capital lost if the stop is hit, for example 1%.
2. Maximum daily loss: beyond it, you close the platform until the next day, for example 2%.
3. Maximum weekly loss: beyond it, you stop until the following week, for example 4%.
4. Maximum number of trades per day, to avoid overtrading when nothing is happening or when you want to win it back.
5. Stop after X consecutive losses: for example three stops in a row and you are done for the day, even if the percentage limit has not been reached.

These rules work together. The per-trade limit stops a single mistake from doing serious damage. The daily limit stops a bad day from becoming a disaster. Stopping after several losses targets revenge trading directly, which almost always starts after a run of stops.

A template to fill in

Here is a sample grid for a trader starting out with a $10,000 account. The values are a cautious starting point, not a personal recommendation: adapt them to your strategy, your capital and your measured results.

Notice how the lines fit together. With 1% per trade and a 2% maximum daily loss, two stops are enough to end the day, even before the three-consecutive-losses rule kicks in. That is deliberate: several overlapping rules protect you even on the day you forget one. Also check that your limits stay compatible with your open-risk cap: with 3% total risk allowed and a 2% daily limit, you should never have three losing positions open at once without reacting.

Making the rules workable

A good rule is simple, has a number and is tied to a specific action. “Be careful with losses” is not a rule. “If my loss for the day reaches $200, I close all my positions and open nothing until tomorrow” is one. The less room you leave for interpretation, the better your chances of applying it when emotions run high.

• Use your platform's tools where they exist: loss alerts, position size limits, stop orders placed automatically.
• Plan for special cases too: major news releases, positions held over the weekend, low-liquidity public holidays.
• Decide in advance what happens when a rule is broken, for example a day without trading.
• Only change your rules outside market hours, and note the date and the reason for the change.

Measuring how well you follow your rules

At the end of each week, go back through your journal and count the breaches: a trade without a stop, risk above 1%, a trade taken after the daily limit. The goal is not to judge yourself but to know whether your results come from your strategy or from your breaches. A strategy cannot be evaluated if it is not applied.

A verified track record, connected directly to your broker account, is the most honest way to keep track of all this: it shows your real drawdown, your real position size and your real win rate, with nothing left out and no flattering rounding. It is also what you should demand from any trader you are thinking of following.