1
Numeric limits
Risk per trade, portfolio heat, leverage, daily loss, and weekly loss must be measurable.
Lesson · Trading Risk Management
Trading Risk Plan
Combine account limits, position sizing, execution constraints, portfolio exposure, options rules, and review triggers into one testable risk specification.
Core concepts
What to understand
Keep the process direct: define the risk, calculate it, and enforce the limit.
2
Decision rules
Specify when to reduce size, reject a trade, or stop trading.
3
Review triggers
Define when results require investigation, simulation, or strategy suspension.
Interactive lab
Change the risk conditions
Adjust the controls and read the market behavior and account impact after each change.
Trading Risk Plan Lab
Synthetic educational data · no live market connection
RISK MODEL
Risk process
Apply it in order
Risk calculations should happen before the order is submitted.
Write the limits
Use exact percentages, dollars, and conditions.
Check contradictions
Open-risk limits must be compatible with per-trade risk and maximum concurrent positions.
Export and enforce
Use the same specification in journals, backtests, alerts, and future automation.
Knowledge check
Check your understanding
Select one answer for each question. Feedback appears immediately.
1. A risk plan should be written:
Predefined rules reduce changes made under market and emotional pressure.
2. What makes a risk rule testable?
Numeric thresholds and explicit actions can be checked consistently.
3. What should happen when plan limits conflict?
The plan must be internally consistent before it can control risk.
4. Risk per trade 1%, maximum positions 4, maximum open risk 5%. What does the validator in this lesson’s lab say?
4 positions × 1% = 4% is the most open risk the other two limits allow, so a 5% cap is never reached: it is not wrong, but it is not doing anything. Lower it to 4% or raise the position count; the lab flags it as a note to resolve (and, with the lab's default 3% daily limit, also flags open risk above the daily limit, which is the harder contradiction).
Practical rules
- Use measurable limits and explicit actions.
- Validate portfolio, leverage, and options rules together.
- Version the plan and record every change.
Common mistakes
- Using vague terms such as “small risk.”
- Allowing exceptions without predefined criteria.
- Changing multiple limits after a short losing sample.
References
Official reading
The labs use simplified synthetic examples. These sources cover the underlying risk and execution concepts.
CME Group · Trading Strategies in Your Trade Plan
Write exact entry, exit, stop, target, and portfolio-risk conditions.
FINRA · Risk
Risk tolerance and risk types should be understood before investing.