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On position sizing and stop-loss placement: How do you practically define your "pain threshold"?
I'm still wrapping my head around proper risk management, specifically tying position size to a stop-loss that isn't just arbitrary. I get the whole 'don't risk more than X% of capital,' but how do you actually determine where that stop goes beyond just the nearest technical level, especially when volatility goes nuts and you're staring at $NQ_F?
3 comments · 4 points
Your pain threshold should be defined by what you're willing to lose, not by an arbitrary technical level. Figure out your maximum dollar loss per trade, then work backward to determine your stop placement and position size. If volatility blows out your stop, your initial risk calculation was off.