The #1 Rule of Trading
Rule #1: Don't lose money. Rule #2: Don't forget Rule #1. — Warren Buffett
Risk management isn't about avoiding losses — they're inevitable. It's about keeping losses small and manageable so you survive long enough for your edge to play out.
The 1-2% Rule
Never risk more than 1-2% of your portfolio on a single trade. If you have $100K, your maximum loss per trade should be $1K-$2K.
Our AI uses this exact principle: each strategy allocates a percentage of its portfolio per trade based on confidence level.
Risk-Reward Ratio
A good trade has at least a 2:1 reward-to-risk ratio. If you're risking $500, you should be targeting at least $1,000 in profit.
Drawdown Management
Drawdown is the peak-to-trough decline in your portfolio. Our AI has circuit breakers that pause trading if drawdown exceeds thresholds.
🤖 How Our AI Uses This
Every strategy has a max position size (5-15% of portfolio), drawdown circuit breakers (pause at -10%), and dynamic position sizing based on confidence. The AI never risks more than 2% of portfolio value on any single trade.
Key Takeaways
- Risk management > strategy selection for long-term success
- Never risk more than 1-2% per trade
- Target at least 2:1 reward-to-risk ratio
- Use circuit breakers to prevent catastrophic drawdowns