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
Warning
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
Pro Tip
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
Info
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
Warning
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.