Risk Management in Trading

Position sizing

Position sizing determines how much of your account goes into any one trade. Fixed-percent-risk sizing (e.g., risk 1% of account per trade) bounds losses mathematically regardless of strategy. Most retail blowups come from oversized positions, not bad entries.

Stop losses

A stop loss is a pre-committed exit point at which a trade is considered wrong. Stops are not a cost; they are the price of information. A strategy without stops isn't a strategy — it's a one-way bet.

Daily drawdown caps

Beyond per-trade stops, professional systems impose daily drawdown caps — a threshold at which all trading stops for the day regardless of current signals. This prevents cascading losses during exceptional regimes.

Correlation

Three separate trades that are all long tech are really one trade. Real risk management considers correlation, not just position count.

How Sleeping Trade handles it

Position sizing is automatic, based on account balance. Stops are placed at the broker with each entry — not held in memory. Daily drawdown caps halt new entries at fixed thresholds. Correlation is checked before sizing new positions.

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How Sleeping Trade approaches risk management in trading

Sleeping Trade implements risk management as code-enforced rules: per-trade stop loss, per-day loss limit, per-week drawdown cap, and exposure limits per instrument. These cannot be overridden by user emotion.

Manual traders know these rules but cannot apply them consistently. The 'one more trade to make it back' instinct is universal and is the single largest contributor to the SEBI loss data. Mechanical enforcement is what fixes it.

Frequently Asked Questions

What stops me from losing my entire account?

Per-day and per-week loss limits halt new trades when triggered. These are mechanical, not user-overridable.

Can I disable stop losses?

No. Stop losses are part of the strategy and cannot be turned off.

What is the worst expected drawdown?

Drawdowns of 8–15% are realistic in normal market regimes. We do not guarantee a maximum drawdown — that would be misleading.

The risk rules manual traders break most often

Rule one: do not move stop losses against the trade. Manual traders break this routinely with rationalisations like 'volatility expansion' or 'one more day to play out.' The system does not move stops, ever.

Rule two: do not double down on losing positions. Manual traders break this through 'averaging into the trade' to lower the cost basis. The system does not average down on losers.

Rule three: do not increase size after a winning streak. Manual traders break this through confidence-driven over-sizing. The system sizes mechanically regardless of recent P&L.