Choosing contracts from the desired profit or increasing size after two losses.
06 / Risk & Discipline
From planned risk to an execution journal
The book connects capital management, psychology and preparation. The goal here is to translate an idea into planned downside and separate plan quality from luck in one outcome.
What you need to understand
Place the stop before choosing size
Identify what invalidates the scenario, then calculate size within the risk budget. Widening a stop to avoid a loss changes the accepted risk. A stop order does not guarantee an execution price.
A percentage is a rule, not absolute protection
The book uses 1% as a teaching convention, not a level suitable for everyone. Twenty losses at 1% of the remaining balance produce approximately an 18.21% decline before costs. That describes compounding, not guaranteed survival.
Include costs in reward-to-risk
If each loss is 1 R and each win 2 R, theoretical break-even is one-third winning trades before costs. Partial exits, variable gains and fees change the threshold. An attractive quoted ratio does not establish positive expectancy.
Worked example
MES adaptation: hypothetical budget $100, stop 20 ticks at $1.25 per tick. Each contract risks $25 before costs; four use the entire budget. Add $2 per contract in fees and four cost $108, so the calculated maximum becomes three. Also check margin, slippage and account rules.
Prepare context, invalidation, size and a stopping rule. Record financial results and rule adherence separately after the session, including no-trade days.
Simulation exercise
For five simulated sessions, choose one observable rule. Record decisions in the Excel journal, then count compliant sessions. Compliance does not prove profitability.
Source: TUNTRADER book — Wajdi Mansour, PDF file pages: 20, 21, 22, 54.
Content summarized and adapted for the site, with calculations made explicit. Examples are not current recommendations.
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