Trading Basics: Structure, Risk and Trade Management

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Use price structure to define the trend and the developing correction. An equal measured move, RSI divergence, or a Wave Compression Setup can contribute to that analysis. None replaces the complete setup. If the required Box is absent, I wait. Read the Trading System overview and terminology for the framework.

The money allocated to a position and the amount it could lose are different measurements. For an unleveraged stock example, planned risk per share is the entry price minus the planned stop price. Dividing the chosen dollar risk by that distance gives a starting share count, rounded down.

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For example, a hypothetical $12,000 account with a 1% planned risk budget has $120 at risk. An entry at $50 and a planned stop at $47 creates $3 of planned risk per share: $120 ÷ $3 = 40 shares. Those shares cost $2,000. This illustration excludes fees and assumes an exit at $47; it does not establish a maximum possible loss or a suitable allocation for every trader.

My system describes typical planned risk of approximately 1–2% per trade. Several positions can still create substantial combined exposure. Add their planned risks and look for overlap across stocks, sectors and funds. Different ticker symbols do not necessarily represent independent risks.

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For example, two different stocks may both be vulnerable to the same rise in interest rates.

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Watch this 56-second lesson on why several stocks can still leave you concentrated.

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My sequence is to take partial profits on a reaction, adjust stops as structure improves, and let the trend determine the remaining exit. The partial-sale amount and stop adjustment belong in the setup's plan. A single percentage or automatic move to the entry price does not describe every situation.

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Taking a partial profit reduces the number of shares still exposed. The remaining position can still lose money, and the final result depends on both the realized partial exit and the eventual exit of the balance.

A stop order becomes a market order when triggered; the stop price is not a guaranteed execution price. A gap or fast move can therefore produce a larger loss than the planned calculation. Include this possibility when assessing a position and the portfolio. Investor.gov explains order types and execution prices.

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Hypothetical educational example. A planned stop does not guarantee the exit price.

• What is the trend and the proposed wave structure?
• Where is the predefined Box, and what would invalidate the idea?
• What are the position size, planned dollar risk and combined portfolio exposure?
• How will I handle a reaction, a partial exit and a structural stop adjustment?
• What will I record if the setup fails or I decide to skip it?

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Review the outcome against the original plan. Include skipped and unsuccessful setups so the record reflects the decisions you actually faced.

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Review the complete Trading System.

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For educational purposes. Examples are hypothetical, not reported trading results or personalized financial advice. Do what is best for you.