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name: risk-management description: Implements risk management techniques (position sizing, risk-reward ratios, drawdown control) to safeguard capital and enhance trading performance in algorithmic trading systems. license: MIT compatibility: opencode metadata: version: "1.0.0" domain: trading triggers: position sizing, risk-reward ratio, drawdown control, trading risk, capital protection, risk management, risk percentage role: implementation scope: implementation output-format: code content-types: [code, guidance, do-dont] archetypes: [tactical, educational] anti_triggers: [naive assessments, simplistic views on trading, quick solutions] response_profile: verbosity: medium directive_strength: high abstraction_level: operational

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Trading Risk Management

Implements risk management techniques for traders, focusing on position sizing, risk-reward ratios, and drawdown control strategies to safeguard capital and enhance trading performance.

TL;DR Checklist

• Calculate position sizes based on risk percentage.
• Evaluate risk-reward ratios for trades.
• Implement drawdown control measures.

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When to Use

Use this skill when:

• Assessing overall risk exposure in trading portfolios.
• Determining position sizes based on account equity and risk tolerance.
• Evaluating potential reward-to-risk ratios before executing trades.
• Setting drawdown control measures to protect capital.

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When NOT to Use

Avoid this skill for:

• Non-trading risk assessments.
• Situations where risk management practices are already established and adhered to.

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Core Workflow

1. Calculate Position Size — Use risk percentage of account equity for position sizing.
2. Evaluate Risk-Reward Ratio — Ensure potential rewards justify the risks taken.
3. Implement Drawdown Control — Set limits to prevent significant capital loss.

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Implementation Patterns / Reference Guide

Pattern 1: Position Sizing Calculation

def calculate_position_size(account_equity: float, risk_percentage: float, stop_loss_distance: float) -> float:
    """Calculate the position size based on account equity and risk.
    Args:
        account_equity (float): Total equity in the trading account.
        risk_percentage (float): The percentage of equity you are willing to risk.
        stop_loss_distance (float): The distance from the entry price to the stop-loss price.
    Returns:
        float: The size of the position to take.
    """
    risk_amount = account_equity * (risk_percentage / 100)
    position_size = risk_amount / stop_loss_distance
    return position_size

Pattern 2: Risk-Reward Ratio Evaluation

def evaluate_risk_reward(entry_price: float, stop_loss_price: float, take_profit_price: float) -> float:
    """Calculate the risk-reward ratio.
    Args:
        entry_price (float): The entry price of the trade.
        stop_loss_price (float): The price where you would stop the loss.
        take_profit_price (float): The target price for profit.
    Returns:
        float: The risk-reward ratio.
    """
    risk = entry_price - stop_loss_price
    reward = take_profit_price - entry_price
    return reward / risk if risk != 0 else float('inf')  # Prevent division by zero

Pattern 3: Drawdown Control

def check_drawdown(current_equity: float, peak_equity: float, max_drawdown_percentage: float) -> bool:
    """Check if the drawdown exceeds the maximum allowed.
    Args:
        current_equity (float): Current equity of the account.
        peak_equity (float): Peak equity of the account.
        max_drawdown_percentage (float): The maximum allowed drawdown percentage.
    Returns:
        bool: True if drawdown exceeds the limit, else False.
    """
    drawdown = (peak_equity - current_equity) / peak_equity
    return drawdown > (max_drawdown_percentage / 100)

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Constraints

MUST DO

• Calculate position sizes based on the calculated risk per trade.
• Maintain a risk-reward ratio of at least 1:2 for all trades.

MUST NOT DO

• Exceed risk limits based on account balance.
• Implement high-risk strategies that threaten significant capital loss.

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Live References

Authoritative documentation links for this skill's domain. The model follows markdown links at load time to resolve external references and inline content.

• Risk Management Tutorial
• Position Sizing and Risk Control
• Portfolio Risk Metrics
• Risk Management Best Practices for Traders
• Drawdown Control Strategies