Writing a one-page risk plan
Lesson 20 · about 9 min
Everything in the first five modules is a number. A risk plan is those numbers written down, in advance, on one page, so that the decisions are already made when the market makes them hard to make. If it is not written, it is not a plan; it is a mood.
Who the plan is for
The plan is not for the calm, rested version of you who reads courses on a Sunday. That person does not need rules. The plan is for the version of you at 2:40pm on a Thursday, three losses down, who has just spotted a setup that would "make it all back". The plan has to be short enough that this person will read it, and specific enough that they cannot argue with it.
One page. Numbers, not principles. "Manage risk carefully" is not a rule. "1R = 0.75% of the balance as of the first of the month" is.
The twelve lines
Every plan needs these lines, each with a number or a yes/no:
| # | Line | Example |
|---|---|---|
| 1 | Account balance the plan is based on | $12,000 (recomputed monthly) |
| 2 | Risk per trade (1R) | 0.75% = $90 |
| 3 | Maximum single position | 25% of balance = $3,000 |
| 4 | Maximum heat (total open risk) | 4% = $480 |
| 5 | Maximum risk per theme | 2.5% = $300 |
| 6 | Maximum used leverage | 3× notional to balance |
| 7 | Daily loss limit | 2.5R = $225, then stop |
| 8 | Weekly loss limit | 5R = $450, then stop for the week |
| 9 | Monthly loss limit | 8R = $720, then stop and halve 1R next month |
| 10 | Markets and sessions I trade | MES, MNQ, US cash session only |
| 11 | Stop rules | Hard stop in the market on every trade; never widened |
| 12 | Review | Monthly, first weekend; scaling rules in lesson 3 |
Line 1 is recomputed at a fixed interval, usually monthly, and then held fixed for the month. Recomputing daily creates an incentive to "size up because I'm up today", which is how a good morning becomes a bad afternoon.
Key idea: A risk plan is twelve numbers on one page. If you cannot state each one from memory, you do not yet have a plan; you have intentions.
Deriving the numbers
The lines are not independent. Derive them in order so they agree with each other:
- Start with the maximum drawdown you could take and still keep trading calmly. Be honest; for most people it is 15% to 20%.
- Choose 1R so that a 15-trade losing streak stays inside that. At 0.75%: 0.9925^15 = 89.3%, a 10.7% drawdown. Fine. At 1%: 14%. Also fine. At 1.5%: 20.3%. At the edge.
- Set the daily limit at 2R to 3R, so that a bad day is 1.5% to 2.25% and it takes at least two bad days to reach a 5% drawdown.
- Set heat so that a day when every stop is hit does not blow far through the daily limit: heat of 4% to 5% against a 2.5R (1.9%) daily limit means the worst simultaneous stop-out is about twice the daily limit. Tight enough. If that feels like too much, lower heat.
- Set the theme cap below heat, so that no single bet can consume the whole heat budget: 2.5% against 4% heat.
- Set the leverage cap from the stops you actually use: if your typical stop is 1.5% and 1R is 0.75%, used leverage is normally 0.5×; a 3× cap leaves room for tighter-stop trades and catches accidents.
- Set the position cap from gap risk: the largest overnight gap you are willing to absorb, say 20% on a single stock, times the position cap of 25%, is a 5% account loss. If 5% is too much, lower the cap.
Now every number is defensible with arithmetic, and when the 2:40pm version of you asks "why can't I take this?", the answer is on the page.
A filled example
Account $12,000. Maximum tolerable drawdown 15%.
- 1R = 0.75% = $90. Fifteen straight losses = 10.7% drawdown. Inside the 15%.
- Daily limit 2.5R = $225 (1.9%).
- Weekly limit 5R = $450 (3.75%).
- Monthly limit 8R = $720 (6%). If hit, next month 1R becomes $45.
- Heat cap 4% = $480. At $90 per trade, that is five full-size positions.
- Theme cap 2.5% = $300, or three positions in one theme.
- Position cap 25% = $3,000.
- Leverage cap 3× = $36,000 total notional.
- Markets: MES and MNQ during US cash hours; nothing held over the weekend during the first six months.
- Stops: placed in the platform before or with the entry; moved only towards price.
That is the whole plan. It fits on an index card, which is where it should live: next to the monitor.
What is not in the plan
Entries, setups, indicators and targets belong in a trading plan, which is a different document. Keeping them separate matters because the risk plan should almost never change, while the trading plan changes as you learn. When the two are mixed, every strategy tweak becomes an excuse to "adjust" the risk numbers.
Try it: Fill in the twelve lines for your own account right now, deriving them in the order above. Do it in fifteen minutes with a calculator, print it, and put it where you trade. Lesson 4 has a template you can copy.
Recap
- A risk plan is one page of numbers, written for the tired, losing version of you.
- Twelve lines: balance, 1R, position cap, heat cap, theme cap, leverage cap, daily, weekly and monthly limits, markets, stop rules, review.
- Derive the numbers in order from your maximum tolerable drawdown so they agree with each other.
- Recompute the balance monthly and hold it fixed; never resize intraday.
- Keep entries and setups in a separate trading plan so the risk numbers stay stable.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.