Risk and R:R
Lesson 13 of 39 in the course “Crypto”. Free, with animations and a quiz.
Risk 1–2% per trade
Risk per trade is how much money you lose if your stop-loss fires, the order that closes the trade at a loss on its own. A common guideline is 1–2% of your account. It is a rule of thumb, not a law. The picture shows five losses in a row: at 1% risk the account loses 4.9%, at 10% risk it loses 41%. The first hole is easy to climb out of, the second is very hard.
Example: what it means in money
Example: a $1,000 account. 1% risk = $1,000 × 0.01 = $10. That is not the trade size, it is the amount you lose if the stop fires. Stop 5% below entry? Then the trade can be $10 / 0.05 = $200. Stop hit: minus $10, and the account shows $990. Key point: risk is set by the distance to the stop, not by how much you put in.
Why a drawdown is hard to win back
A drawdown is how far the account has fallen from its peak. After minus 41%, every $100 becomes $59. To get back to $100 you need +69%: $59 × 1.69 ≈ $100. The trap: losing 41% and gaining 41% are not the same thing. So a small risk per trade is not cowardice, it is how you stay in the game.
Check yourself
- What risk per trade is most often suggested as a guideline?
Correct answer: 1–2% of the account. It is a popular guideline. At 1% risk, five losses in a row cost about 5% of the account, not half of it. - Risk is 1R, target is 2R. What is the R:R?
Correct answer: 1:2. R:R is written as risk to reward. The reward is twice the risk, so it is 1:2. - What does a stop-loss do?
Correct answer: Caps the loss on the trade. A stop-loss closes the trade at a price chosen in advance if the market goes against you. Profit at the target is locked by a take-profit.
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