03 · Level 3Position size, drawdown, margin calls, and the habits that empty an account faster than any bad entry. Twelve lessons.
Risk and the mind: how accounts survive
- 3.1
Risk per trade: the 1-2% rule
Deciding the money you can lose on one trade before deciding anything else. Everything downstream — size, stop, target — follows from that number.
- 3.2
Working out position size
Risk in money, divided by the stop distance in pips, divided by pip value. Three numbers you already have, in that order.
- 3.3
Risk and reward
What the ratio between stop and target does to the hit rate you need. The arithmetic is fixed; the ratio you can actually get is not.
- 3.4
Drawdown and losing streaks
How far an account falls from its peak, and why a run of losses is normal rather than evidence that something broke.
- 3.5
Margin call and stop out
The two thresholds at which a broker warns you and then closes your positions, and the numbers that bring an account to them.
- 3.6
Fear, greed and FOMO
The three states in which traders break their own rules, and what each one feels like from the inside while it happens.
- 3.7
Overtrading and chasing losses
Two patterns that turn one bad trade into a bad week: trading more often than the plan allows, and raising size to win it back.
- 3.8
Discipline: the rules you do not break
A short written routine before, during and after the session — the part of trading that is the same every day.
- 3.9
Signals, robots and copy trading
Three ways to hand decisions to someone else, what each one actually copies, and what stays your risk regardless.
- 3.10
Checking a broker in the local register
Where the register is, what to type into it, and which answers mean the licence does not cover what you were offered.
- 3.11
Tax on trading in your country
Which authority wants to hear about trading results, what kind of income they are treated as, and what records to keep from the start.
- 3.12
Taking your money out
The route a withdrawal takes, how long each step holds it, and the checks that stop one.
See how a small risk per trade keeps an account alive
Imagine two traders each start with KSh 100,000. Both use EUR/USD at 1.0850. The first risks KSh 2,000 on a trade. The second risks KSh 20,000. Price moves 50 pips against each of them. The first loses KSh 2,000 and still has KSh 98,000. The second loses KSh 20,000 and is left with KSh 80,000. The difference is not luck. It is the size of the risk taken before the trade began.
A loss of KSh 2,000 on a KSh 100,000 account is 2 per cent. A loss of KSh 20,000 is 20 per cent. To recover from a 20 per cent loss, the second trader needs a 25 per cent gain on what remains. To recover from a 2 per cent loss, the first needs a 2 per cent gain. The arithmetic is unforgiving: deep losses demand larger gains just to get back to where you started.
This level teaches you to choose the first path. You will learn to set a fixed percentage of your account as the most you can lose on one trade. You will learn to turn that amount into a position size using the pip value of EUR/USD. You will also learn why a losing streak of five or six trades in a row is normal, and how a small risk per trade lets you survive it. By the end, you will be able to place a trade knowing the exact shilling amount you stand to lose if the market goes against you.
Build the habits that stop a bad week becoming a closed account
Most beginners do not blow up from one terrible trade. They blow up from a series of ordinary losses chased with larger and larger positions. After three losses, the temptation is to double the next trade to win it all back. That is how a 6 per cent drawdown becomes a 40 per cent drawdown. The lessons on fear, greed and FOMO, and on overtrading and chasing losses, show you the thoughts that lead there and the rules that block them.
Discipline is not a personality trait. It is a set of rules written down before the market opens. This level asks you to write your own: the maximum risk per trade, the maximum number of trades per day, the maximum loss before you stop for the week. You will also learn what a margin call and a stop out are, so you recognise the broker closing your positions before you lose more than you have. Those events happen when the account balance falls below the margin required, and they are not a rescue.
The final lessons cover the practical side of keeping your money. You will learn how to check a broker against the CMA register, why signals, robots and copy trading do not remove risk, how tax on trading works where you live, and how to withdraw funds through M-Pesa or bank transfer. None of these lessons promise a profit. They are about staying in the market long enough to learn, and about keeping what you have.
Work through the level in order and at a realistic pace
The twelve lessons build on each other. Start with the 1-2% rule, because every later calculation depends on it. Then learn to work out position size from that percentage, the pip value and your stop distance. Risk and reward comes next, so you can compare what you stand to gain against what you stand to lose. Drawdown and losing streaks follow, because they explain why small risks matter over many trades. Only then do margin calls, stop outs and the psychology lessons make full sense.
The last four lessons are about the world around your trading. Signals, robots and copy trading are popular, so you need to see what they actually do. Checking a broker in the local register is a step you take before sending money, not after. Tax on trading varies by country and by personal situation, so the lesson shows you what to ask and where to ask it. Taking your money out is the final skill: a profit you cannot withdraw is not a profit.
How long does this take? Reading the lessons takes about three hours. Doing the position-size calculations for yourself, with your own account size, takes another two to three hours. Writing your own trading rules and testing them on a demo account takes at least a week of daily practice. That is the honest timeline. You can read faster, but the habits only form with repetition. There is no shortcut that skips the practice.
Doing it once, step by step
You are about to work through Level 3 in the order the lessons are listed. Each step below tells you what to do with the lesson material before you move to the next one.
- 01
Calculate your risk per trade
Take your account balance in KSh and multiply it by 0.01 and 0.02. For a KSh 100,000 account, that gives KSh 1,000 and KSh 2,000. Write both figures down. These are the most you may lose on a single trade. Do this before you look at any chart.
- 02
Convert risk to position size
Use the EUR/USD price near 1.0850 and your stop distance in pips. Divide your risk amount by the pip value for your position size. If one pip is worth KSh 100 and you risk KSh 2,000, your stop must be 20 pips away. Check the pip value with your broker, because it varies.
- 03
Write your three rules
On one page, write the maximum risk per trade, the maximum number of trades per day, and the maximum loss that makes you stop for the week. Sign and date it. These are the rules you do not break, even when you feel certain about a trade.
- 04
Check the broker before you deposit
Look for the broker on the CMA register. Confirm the name matches the one on the website and the app. If it is not there, do not send money. This step takes minutes and prevents the most common loss of all.
- 05
Practise on a demo for one week
Place at least ten trades on a demo account using your risk rules. Record the risk in KSh, the result, and whether you followed your rules. The goal is not profit. The goal is to see whether you can keep the rules when a trade goes against you.
- 06
Plan your withdrawal method
Decide before you deposit whether you will withdraw through M-Pesa or bank transfer. Find out the fees and the processing time, because they vary. A profit you cannot take out is not yet yours.
Questions that come up next
How long does Level 3 take to finish?
Twelve lessons, each built around one idea and one short exercise. Most readers who study for about thirty minutes a day get through the level in two to three weeks. The position size calculations feel slow at first, then become quick. Rushing the drawdown and margin lessons is the common mistake, because those are the ones that protect the account.
Do I need to finish Level 2 before starting this level?
Yes. Level 3 assumes you already know what a pip is, how to read a price quote, and how leverage changes the size of a position. The position size method taught here uses the pip value of EUR/USD, which is covered earlier. Without that groundwork the arithmetic in the first lessons will not make sense.
Is the 1 to 2 per cent rule a law I have to follow?
No. It is a common starting point, not a requirement. Some experienced traders risk less, and a few risk more. The rule exists because it keeps a normal losing streak survivable. What matters is that you pick a number before you trade and keep it fixed, rather than changing it after a loss.
Can I use a robot instead of learning this?
A robot still places trades with a position size, and that size still decides whether the account survives a bad run. You would need to check the risk settings yourself. Signals and copy trading carry the same problem, plus the question of who is accountable when the losses arrive. The level covers how to judge those services rather than how to pick one.
What happens if my broker is not registered with the CMA?
The CMA keeps a register of the firms allowed to offer these services in Kenya. You can check a firm against that register before sending any money. If a firm is not on it, you have fewer routes to complain and less certainty about where your funds sit. The lesson on checking a broker walks through the register itself.
How do I get my money back out?
Withdrawals are usually made by M-Pesa or bank transfer, depending on what the broker supports. The time taken and any fees vary between brokers, so read the terms before you deposit. The final lesson covers what to confirm in writing before you fund an account.
The words used on this page
- position size
- The amount of currency you buy or sell in one trade. It decides how many shillings you gain or lose for each pip the price moves.
- drawdown
- The fall in your account balance from its highest point to its lowest. A 20 per cent drawdown needs a 25 per cent gain to recover.
- margin call
- A warning from the broker that your account balance has fallen close to the margin required for your open positions. It is not a rescue, and it does not stop the losses.
- stop out
- The point at which the broker closes your positions because the balance no longer covers the margin. It happens automatically, at the broker's level, not yours.
- FOMO
- The fear of missing out, which pushes people to enter a trade late because the price is already moving. The entry is usually worse than the one they would have planned.
- copy trading
- A service that repeats another person's trades on your account. Their risk settings may not match yours, so your account can still be emptied.
What to take away
- Decide the shilling amount you can lose on one trade before you open it, then work out the position size from that number.
- A losing streak of five or six trades is normal, and a small risk per trade is what lets the account survive it.
- Write your rules down before the market opens, because the moment to choose your limit is not the moment you are losing.
- Check the broker against the CMA register, and confirm how withdrawals reach your M-Pesa or bank account, before you deposit.