PrincipleUpdated 2026-10-19
Risk first
Decide what you can lose, and where you're wrong, before thinking about what you can make.
Upside takes care of itself if the downside is controlled. Upside you chase without a defined downside eventually takes everything.
In practice, every trade starts with three questions, in this order:
- Where am I wrong? That's the stop.
- How much will that cost? That's 1R, set by position size.
- Is the possible reward worth that? Only then look at targets.
If the first question has no clean answer, there's no trade.
Related
- Plan before the fillEvery new buy has a setup, a one-line trigger, a stop, a size worked out from that stop, and a first target with a trim amount, all written down before the order fills.
- Position sizing: size comes from the stopYou don't pick how many shares to buy. You pick how much you're willing to lose and where your stop is; the share count falls out of the math.
- R: measuring every trade by its riskR is the amount you planned to lose if the stop hit. Every result on this site is a multiple of it, so a trade reads the same at any account size.
- Show the lossesThis record is for the people reading it. That only works if the losses, mistakes, and broken rules are as visible as the wins.
- The stop: deciding where you're wrongA stop is the price that proves the trade idea wrong. It's chosen before entry, placed as a live order, and only ever moved in your favor.