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📈 Intermediate⏱️ 45 minutes

Risk Management Masterclass

Master the art of protecting your capital with advanced risk controls, position sizing, and kill switches.

What You'll Learn

  • ✓Master position sizing strategies for different account sizes
  • ✓Configure daily loss caps to protect your capital
  • ✓Understand and implement spread limits
  • ✓Set up optimal entry time windows
  • ✓Configure end-of-day position sweeps
  • ✓Implement emergency kill switches
  • ✓Optimize risk-reward ratios

Why Risk Management Matters More Than Strategy

The difference between profitable and unprofitable traders isn't usually their entry signals—it's their risk management. Even a mediocre strategy with excellent risk management can be profitable, while a great strategy with poor risk management will eventually blow up your account.

Module 1: Position Sizing Strategies

Position sizing determines how much capital you risk on each trade:

The 1% Rule

  • Never risk more than 1% of account value per trade
  • With $10,000 account, max risk is $100
  • Set stop loss at level that limits loss to 1%
  • Adjust position size based on stop distance
  • This allows for 100 consecutive losses before wipeout
✅

Professional traders rarely risk more than 1-2% per trade. Your edge comes from consistency, not big bets.

Fixed vs Dynamic Position Sizing

Fixed Contract: Trade same number of contracts every time. Simple but doesn't scale with account growth.

Fixed Dollar: Trade specific dollar value. More consistent risk per trade, recommended for most traders.

Percentage of Account: Trade X% of account value. Automatically scales but more aggressive.

Module 2: Daily Loss Caps

Daily loss caps are your safety net against bad days:

  • Set maximum daily loss in dollars
  • Bot automatically pauses when limit is hit
  • Prevents revenge trading and emotional decisions
  • Recommended: 3-5% of account value per day
  • Resets at start of each trading day
⚠️

Without daily loss caps, one bad day can wipe out weeks of profits. Always set them before activating any bot.

Net P&L vs Accumulated Losses

RelayDesk offers two calculation modes:

Net P&L Mode: Stops when overall daily P&L hits limit. Traditional approach that allows wins to offset losses.

Accumulated Losses Mode: Stops when total losses hit limit, regardless of wins. More conservative, preserves gains.

Module 3: Understanding Spread Limits

Wide bid-ask spreads can destroy your profitability:

  • Spread is difference between bid and ask price
  • Wide spreads mean you pay more to enter, receive less to exit
  • Especially important for options with low liquidity
  • Set max spread threshold to reject bad fills
  • Recommended: $0.05-$0.10 for stocks, $0.20-$0.50 for options
💡

ATM (at-the-money) options typically have tighter spreads than OTM (out-of-the-money) options.

Module 4: Entry Window Configuration

Not all trading hours are created equal:

Hours to Avoid

  • First 15 minutes (9:30-9:45 AM ET): Extreme volatility, wide spreads
  • Last 30 minutes (3:30-4:00 PM ET): Day-end chaos, position squaring
  • Lunch hour (12:00-1:00 PM ET): Lower liquidity, choppy price action

Optimal Trading Windows

  • Morning session: 9:45 AM - 11:30 AM ET
  • Afternoon session: 1:30 PM - 3:30 PM ET
  • Adjust based on your strategy's characteristics

Module 5: End-of-Day Position Sweeps

EOD Close Protection prevents overnight assignment risk:

  • Automatically closes options positions before market close
  • Only affects options expiring that day
  • Customizable close time per bot (default: 3:45 PM)
  • System safety net ensures closure by Alpaca deadlines
  • Future expiration contracts remain untouched
ℹ️

Assignment can result in unexpected stock positions and margin calls. EOD protection eliminates this risk.

Module 6: Emergency Kill Switches

Know how to stop everything immediately if needed:

  • Dashboard Pause All: Pauses all active bots
  • Manual Close: Close positions directly in Alpaca
  • Webhook Disable: Pause or delete TradingView alerts
  • API Revoke: Revoke Alpaca API keys as last resort
  • Bot Deactivation: Individual bot on/off switches
⚠️

Practice using these controls in paper trading so you know exactly what to do in an emergency.

Module 7: Risk-Reward Optimization

Profitable trading requires favorable risk-reward ratios:

  • Minimum 2:1 reward-to-risk ratio recommended
  • Risk $1 to make $2 or more
  • Higher ratios allow lower win rates while staying profitable
  • Calculate before entering each trade
  • Use take-profit and stop-loss levels to define R:R

Win Rate vs Risk-Reward

With 2:1 R:R, you only need 34% win rate to break even. With 3:1 R:R, you only need 26% win rate. This is why risk-reward matters more than win rate alone.

✅

Track your actual risk-reward ratios in the analytics. If they're consistently below 1.5:1, adjust your exit strategy.

Key Takeaways

  • ●Risk management is more important than entry signals
  • ●Never risk more than 1-2% of your account per trade
  • ●Daily loss caps prevent catastrophic losses
  • ●Time windows help avoid high-volatility periods
  • ●Spread limits protect against bad fills
  • ●Always have an emergency exit plan
  • ●Proper position sizing allows for long-term survival

Congratulations! 🎉

You've completed this tutorial. Mark it as complete to track your progress.