Formula: (Portfolio Equity × Risk %) / (Entry Price - Stop Loss) / Entry Price. This identifies the exact dollar size needed so that hitting your stop loss results in the specified risk amount.
Never risk more than 1% of your total equity on a single trade. This ensures that even a 10-trade losing streak only results in a ~10% drawdown, which is statistically recoverable.
Leverage is used to normalize risk. If your stop-loss is very tight (e.g. 0.5%), you need higher leverage to reach your 1% risk target. It is not about increasing exposure, but centering capital.
Your liquidation price MUST be further away than your technical stop-loss. If leverage is too high, the exchange might close your position before your stop-loss is even hit.
Professional traders look for at least a 1:2 R:R. This means for every $1 you risk, you aim to make $2. This allows you to be profitable even with a win rate below 50%.
