Trading Classroom Lesson 7: Advanced Risk Strategies & Position Sizing

📘 Introduction

In Lesson 5, we covered basic risk and money management. But if you want to trade like a professional, you need to go further.

Advanced traders don’t just limit risk — they use position sizing and scaling strategies to maximize growth while keeping losses small.

In this lesson, we’ll explore advanced methods like fixed fractional, fixed ratio, Kelly Criterion, scaling in/out, and diversification, plus how to use AI tools like HKAN.trade to optimize your trades.

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📏 Fixed Fractional Method

The fixed fractional method is the most common professional approach.

• You risk a fixed percentage of your account on every trade (e.g., 2%).

• As your account grows, your position size grows too.

• If your account shrinks, your risk shrinks, protecting capital.

👉 Benefits: steady growth, protection during drawdowns.

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📊 Fixed Ratio Method

The fixed ratio method is more aggressive.

• Instead of a fixed % per trade, you increase position size when profits hit certain milestones.

• Example: Increase trade size every time you earn $1,000 in profits.

👉 Benefits: accelerates growth during winning streaks.
⚠️ Risk: can be too aggressive in volatile markets.

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🎯 Kelly Criterion (Mathematical Approach)

The Kelly Criterion uses probabilities to find the “optimal” position size.

Formula:

Kelly % = (Win Rate × Reward/Risk – Loss Rate) ÷ Reward/Risk

Example:

• Win rate = 50%

• Risk/reward = 1:2

• Kelly % ≈ 25% (way too aggressive in practice).

👉 Most traders use half Kelly or less to stay safe.

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🔄 Scaling In & Scaling Out

Professional traders rarely go all in or all out.

• Scaling In: Entering a position in parts (e.g., 50% now, 50% if price confirms).
  → Reduces risk if entry is wrong.

• Scaling Out: Taking profits in stages (e.g., 50% at first target, 50% at second).
  → Locks in gains while allowing winners to run.

👉 This adds flexibility and reduces emotional stress.

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🌍 Diversification Across Assets

Don’t put all your risk in one basket.

• Diversify between forex, crypto, stocks, commodities.

• Spread risk across uncorrelated assets.

• Avoid being overexposed to a single market trend.

👉 Example: If you only trade Bitcoin, one bad market crash can hurt your whole account.

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🤖 Using AI & Data for Risk Optimization

Tools like HKAN.trade give traders an edge by:

• Showing historical volatility to adjust stop losses.

• Using AI predictions to highlight high-probability setups.

• Providing real-time charts for scaling decisions.

👉 Data-driven risk management = smarter decisions, less guesswork.

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📌 Conclusion

Advanced risk and position sizing strategies separate amateurs from professionals.

• Fixed Fractional = steady growth.

• Fixed Ratio = aggressive scaling.

• Kelly Criterion = mathematical edge.

• Scaling In/Out = flexibility and stress reduction.

• Diversification = protection against unexpected market shocks.

Master these tools, and you’ll protect your account while giving yourself room to grow.

👉 Next: Lesson 8 – Trading Strategies & Styles, where we’ll explore different systems and help you find the one that fits your psychology.