Trading & Risk · Risk
Position sizing & risk/reward
How much to bet is more important than what to bet on. The 1% rule, R-multiples and expectancy.
Step 1 of 4 · Overview15 min read ·
account = 50_000
risk_pct = 0.01 # risk 1% per trade
entry, stop = 100.0, 95.0
risk_per_share = entry - stop # 5
shares = account * risk_pct / risk_per_share # 100 sharesR = the amount you risk on a trade. A trade that makes 3× what you risked is +3R. Expectancy = win% × avg win − loss% × avg loss.
| Win rate | Avg win | Avg loss | Expectancy / trade |
|---|---|---|---|
| 40% | +3R | −1R | 0.4×3 − 0.6×1 = +0.6R |
| 60% | +1R | −2R | 0.6×1 − 0.4×2 = −0.2R |
Livermore's busts came from oversizing. With 1% risk you can be wrong 10 times in a row and still have ~90% of your account.
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