Unit 05 · 40 minutes
Risk, Position Sizing and Drawdown
Define risk before entry, size positions correctly and understand how losing sequences affect an account.
By the end, you can
- ✓Size a trade from risk and stop distance
- ✓Use R-multiples and expectancy
- ✓Create personal daily stop rules
Risk starts with invalidation
A stop belongs where the trade idea is proven wrong, not where a preferred lot size makes the loss comfortable. Once the stop distance is known, position size adapts to the risk budget.
Position sizing
Risk amount equals account equity multiplied by chosen risk percentage. Position size then equals risk amount divided by the value of the stop distance, adjusted for instrument value and trading costs.
R and expectancy
One R is the amount planned at risk. Expectancy combines average win, average loss and their frequencies. A high win rate can still lose money, and a low win rate can work if winners are sufficiently larger than losses.
Drawdown and sequence risk
Losses compound from a smaller base and recovery requires a larger percentage gain. The order of wins and losses matters when limits are fixed. Stress-test longer losing sequences than the recent sample.
Personal guardrails
Set a personal daily loss below the firm limit, a maximum number of trades, and a stop condition for fatigue or emotional escalation. A firm limit is an emergency boundary, not a daily risk target.
Practice room
Turn the idea into a decision
These are fictional learning scenarios. They do not place trades or use real money.
Position-size sandbox
Cash risk
$50.00
Position size
0.25 lots
Learning estimate only. Verify contract size, quote-currency conversion and costs in the instrument specification before any order.
Finish this unit
Pass each required activity, then save the current lesson version to your record.
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