Stop Blowing Up Your Account: A Risk Management Framework

I blew up two accounts before I figured this out. The difference between profitable traders and everyone else isn't stock picking — it's risk management. Here's the framework I use every single day.

Rule 1: The 1% Rule

Never risk more than 1% of your total account on a single trade. If you have a $50,000 account, your max loss on any trade is $500. Period. No exceptions. This single rule will keep you in the game long enough to become profitable.

Rule 2: Position Size = Risk / Distance to Stop

Calculate your position size mathematically, not emotionally. If your max risk is $500 and your stop is $2 away from entry, your max position is 250 shares. Simple math, but most traders skip it.

Rule 3: Daily Loss Limit

Set a daily loss limit of 2-3% of your account. If you hit it, you're done for the day. Walk away. The worst losses happen when you're trying to revenge trade your way back to green.

Rule 4: Correlation Risk

If you're long NVDA, AMD, and AVGO — you don't have three positions. You have one big semiconductor bet. Diversify your risk across uncorrelated setups.

Rule 5: Scale Out, Don't Go All-In/All-Out

Take profits in thirds. Trim at target 1, trim at target 2, let the rest ride with a trailing stop. This locks in gains while letting winners run.