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Risk management

How much of a portfolio to risk on any single position

Two traders can put the same dollar amount into the same asset and take very different amounts of risk, depending on where their stop is. Size and risk aren't the same thing.

Size vs. risk

Size is how much money is in the position. Risk is how much you'd actually lose if your stop is hit — size multiplied by the percentage distance to that stop. A $2,000 position with a stop 5% away risks about $100. The same $2,000 with a stop 20% away risks about $400, even though the size was identical.

Why this matters

Thinking only in size can hide how much you're really exposing yourself to. Two "$1,000 positions" can carry very different real risk depending on how far away the stop is. Before opening anything, it's worth asking: if this goes wrong exactly as far as my stop, is that dollar amount one I'd genuinely be fine losing?

Keep it small per idea

Because you're diversifying (previous lesson) and sizing conservatively (two lessons back), the risk on any one idea should be a small fraction of the total account — so no single wrong call defines the outcome.

Practice this

Pick an open paper position. If you set a stop 10% below entry, how many actual dollars would that cost you? Is that a number you'd be fine losing?

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