Foundation course in trader judgement
Stop Losses and Position Sizing for Traders
Where to put a stop loss and how large a position to take, as one decision: fixed-fraction sizing, volatility-based stops, the risk reward ratio, daily and monthly loss limits, and what happens when the market gaps through your stop.
A stop loss is a decision made before the trade about where you will admit you were wrong. Position sizing is the decision about how much that will cost. Most traders make the first and skip the second, and that is why a sound method can still empty an account.
How do you size a position from a stop loss?
Decide the fraction of the account you will lose if the stop is hit, measure the distance from entry to stop, and divide. That one line of arithmetic, applied to every trade, does more for a trader’s survival than any entry signal. The course works it through for stocks, futures, forex and options.
Why do professional desks use loss limits?
Because one bad day can undo a good month, and judgement is worst after a loss. Bank desks and prop firms stop traders at daily and monthly limits as a matter of routine. The course has you write your own limits and the rule that enforces them.
Who is this course for?
Every trader on the trader path, and any trader whose results swing more than their method explains. No programming is needed.
What you will be able to do
- Place a stop loss from the structure of the trade rather than a round number of dollars.
- Size a position so that a stopped trade loses a fixed fraction of the account.
- Use the average true range to set stops and sizes that adapt to volatility.
- Set daily, weekly and monthly loss limits and the rules that enforce them.
- Explain how gaps, slippage and leverage can make a loss larger than planned.
Syllabus, module by module
Risk per trade
Fixed-fraction risk, why 1 to 2% is common, and what larger fractions do to drawdowns.
Placing the stop
Structure stops, volatility stops, time stops, and the stop you should never use.
From stop to size
The sizing formula in arithmetic, for stocks, futures, forex and options.
Risk and reward
Win rate, payoff and the risk reward ratio, and why neither alone tells you anything.
Loss limits
Daily, weekly and monthly limits, as used by bank desks and prop firms.
When stops fail
Gaps, halts, fast markets and leverage, and how to size for the loss you cannot stop.
How the certificate is earned
Weekly quizzes and two graded problem sets: a sizing worksheet applied to twenty trades, and a written risk policy for your own trading. On a pass you receive the Course certificate in Stop Losses and Position Sizing, issued by the Institute with a verification code. Read how certification works.
This course counts toward
- Foundation Certificate in TradingThe first semester of the trader path: a trading course for beginners in eight parts, from how markets and orders work to costs, charts, risk, edge, psychology and the trading journal, with a simulated-account capstone. No previous knowledge and no programming.
- Diploma in Professional TradingThe top credential on the trader path and the Institute's trading certification for people who do not write code. Three semesters, 24 courses and a 160-hour capstone, from a first lesson on how markets work to a six-month simulated trading business reviewed like a desk.
Questions applicants ask
Where should I put my stop loss?
Where the reason for the trade is proven wrong, not where the loss starts to hurt. Then size the position so that being stopped there costs the fraction of your account you decided in advance. The course teaches both halves.
What is a good risk reward ratio?
It depends on the win rate. A method that wins 70% of the time can make money with a ratio below one; a method that wins 30% needs well above two. The course shows how to judge them together.