Most trading losses are not caused by bad entries. They come from position sizes that are too large, stops that move, and losses that spiral into revenge trades. Risk management is the discipline that prevents that spiral, and it is the part of trading that can be written down and followed. The Day Trading & Crypto Cheatsheet covers price action, indicators, options Greeks and risk rules across four pages. This guide focuses on the risk side.

Trading involves substantial risk of loss. This article is educational and not financial advice.

The 1% rule

The 1 percent rule limits the amount you can lose on any single trade to 1 percent of your account. On a $10,000 account, that is $100. It sounds conservative, but it means a string of ten losing trades costs about 10 percent of your capital, which is survivable, while a few oversized losses can end an account.

Position sizing, step by step

The sizing formula connects your risk limit to your entry and stop-loss:

Shares = (Account × Risk %) ÷ (Entry price − Stop-loss price)

Worked example: your account is $10,000, your risk is 1 percent ($100), you plan to buy at $50 and place a stop-loss at $48. The risk per share is $2, so the position is $100 ÷ $2 = 50 shares. If the stop is hit, you lose about $100 plus any slippage.

Notice what the formula does: a wider stop means fewer shares, and a tighter stop means more. Traders who skip this step often choose a share count first and then hope the stop is far enough away.

Risk-to-reward ratio

Risk-to-reward (R:R) compares what you can lose with what you aim to gain. In the example above, a 1 to 2 ratio would target a $4 gain per share, or $200 on 50 shares. Traders often skip setups that do not offer a reasonable ratio, but a higher ratio does not guarantee profit. Win rate and R:R work together, and you should track both in a journal.

Daily limits and behavior

  • Set a maximum daily drawdown. When you reach it, stop trading for the day.
  • Do not move a stop-loss to avoid a loss. Moving stops is one of the most common ways small losses become large ones.
  • Use a waiting period after a loss. Revenge trading usually happens within minutes of a loss, so step away first.
  • Keep a journal. Record entry, stop, target, reason and outcome, then review weekly.

Indicators in context

Common indicators include RSI (usually 14 periods), MACD, Bollinger Bands, VWAP and ATR. ATR is especially useful for stop placement, because it measures recent volatility. An indicator is a description of price, not a prediction of it. Use indicators to frame decisions, and let the risk formula determine size.

Leverage and derivatives

Leverage multiplies both gains and losses. In crypto derivatives, funding rates, liquidation prices and margin mode (cross versus isolated) can change your exposure quickly. Calculate your liquidation price before opening a leveraged position, and keep the 1 percent rule in force regardless of leverage.

For a printable reference covering these rules, indicators and options Greeks, see the Day Trading & Crypto Cheatsheet. For the valuation side of finance, read our guide to core finance formulas.