Calculate position sizing based on risk tolerance and stop-loss/take-profit levels. Determine optimal position sizes, risk-reward ratios, and manage trading risk effectively.
Total trading capital available
Percentage of capital to risk per trade
Price at which you plan to enter
Price to exit if trade goes against you
Target price to take profit
Risk/reward ratio compares potential profit to potential loss. A 3:1 ratio means you risk $1 to potentially make $3. Higher ratios provide better risk-adjusted returns and require lower win rates to be profitable.
Position sizing determines how many units to buy based on your risk tolerance. It ensures that if your stop loss is hit, you only lose your predetermined risk percentage (e.g., 2% of account).
A stop loss is your exit price if the trade goes against you. It's the most critical risk management tool. Always set stop losses BEFORE entering a trade, never after. Moving stops is a recipe for disaster.
Your take profit is your exit target when the trade works in your favor. Set it based on technical levels (resistance, Fibonacci extensions) or risk-reward goals. Professional traders aim for 2:1 minimum.
Risk percentage is how much of your account you're willing to lose on one trade. Beginners: 1%. Intermediate: 1-2%. Advanced: 2-3%. Never exceed 5% even in high-conviction trades.
You don't need 50%+ win rate to profit! At 3:1 risk-reward, 25% win rate breaks even. At 2:1, you need 33%. High risk-reward ratios are more forgiving of losses - the key to sustainable trading.
Enter your total trading capital. This is the amount you have available for trading across all positions. Example: $10,000 in your exchange account.
The percentage of your account you're willing to risk on THIS trade. Common values: 1% (conservative), 2% (standard), 3% (aggressive). Never use more than 5% even in your highest-conviction setups.
The price at which you plan to enter the trade. Use current market price, or a specific level you're targeting (support, breakout level, etc.). Example: BTC at $50,000.
Your exit price if the trade goes wrong. Place below support, below entry for longs. This MUST be below your entry price. Example: $48,000 if entering at $50,000 (4% stop).
Your target profit level. Place at resistance, Fibonacci extensions, or calculated based on desired risk-reward ratio. This MUST be above entry. Example: $55,000 (10% gain, 2.5:1 risk-reward).
You'll see: Position Size (total $ value), Quantity (units to buy),Risk/Reward Ratio (X:1 format), and Max Loss ($ risked).
$10,000 account, risk 2%, BTC entry $50,000, stop loss $48,000, take profit $55,000:
Result: Buy 0.1 BTC ($5,000 position). Max loss $200, potential profit $500.
Max Loss = Account Balance × (Risk % ÷ 100)
Example: $10,000 × (2 ÷ 100) = $200
Risk Per Unit = |Entry Price - Stop Loss|
Example: |$50,000 - $48,000| = $2,000
Quantity = Max Loss ÷ Risk Per Unit
Example: $200 ÷ $2,000 = 0.1 BTC
Position Size = Quantity × Entry Price
Example: 0.1 × $50,000 = $5,000
Profit = Quantity × |Take Profit - Entry|
Example: 0.1 × |$55,000 - $50,000| = $500
R:R = Potential Profit ÷ Max Loss
Example: $500 ÷ $200 = 2.5:1
Proper position sizing ensures you risk exactly what you intended (e.g., 2% of account), no more, no less. This protects you from catastrophic losses while allowing sufficient position size to make meaningful profits. The risk-reward ratio tells you whether a trade is worth taking - professionals typically require 2:1 minimum.
Higher risk-reward ratios allow lower win rates while remaining profitable. Here's the break-even win rate for common ratios:
Break-even: 16.7% win rate | Profitable: 25%+
Elite setup. You can lose 4 out of 5 trades and still profit. Rare but powerful.
Break-even: 20% win rate | Profitable: 30%+
Excellent setup. Win 1 in 3 trades and you're highly profitable.
Break-even: 25% win rate | Profitable: 35-40%+
Professional standard. Lose 2 out of 3 trades and still break even.
Break-even: 33% win rate | Profitable: 45-50%+
Minimum acceptable. Win half your trades and you're solidly profitable.
Break-even: 40% win rate | Profitable: 55-60%+
Below average. Requires high accuracy to be worth taking.
Break-even: 50% win rate | Profitable: 60-70%+
Poor setup. Need 60-70% win rate to profit - very difficult to achieve.
Most traders focus on increasing win rate, but professional traders focus on risk-reward ratio. A trader with 40% win rate at 3:1 R:R makes more money than a trader with 60% win rate at 1:1 R:R. Always prioritize high risk-reward setups over high win rates. Aim for 2:1 minimum, target 3:1+.
Risk the same percentage (1-2%) on every trade. This is the most common and safest method. Your position size automatically adjusts based on stop-loss distance, keeping risk constant.
Mathematical formula: (Win Rate × Avg Win - Loss Rate × Avg Loss) ÷ Avg Win. Theoretically optimal but can recommend large positions. Use "Half Kelly" (divide result by 2) for more conservative sizing.
Adjust position size based on conviction: 1% for normal setups, 2% for high-confidence, 3% for exceptional opportunities. Requires honest self-assessment and proven edge in identifying "high-confidence" setups.
Reduce position size for volatile assets, increase for stable ones. Use ATR (Average True Range) or standard deviation to measure volatility. This keeps actual risk consistent across different assets.
Start with half your planned position. If trade moves in your favor, add the remaining half. This reduces risk if you're wrong, and lets you increase position at better risk-reward after initial confirmation.
Risk the same dollar amount (e.g., $200) on every trade regardless of account size. Simpler than percentage but doesn't scale with account growth. Good for beginners to understand dollar risk viscerally.
Beginners: Fixed 1% risk per trade until proven profitable over 50+ trades. Keep it simple.
Intermediate: Fixed 1-2% with occasional 2.5-3% on high-conviction setups that meet strict criteria.
Advanced: Combine fixed percentage (1-2% base) with confidence adjustment (+0.5-1% for exceptional setups) and volatility adjustments. Track results religiously to validate your position sizing edge.
Moving your stop loss further away when price approaches it is the #1 way traders blow up accounts. Your stop loss exists because your thesis was wrong - accept the loss and move on.
Taking larger position after a loss to "win it back quickly" destroys accounts. After a loss, maintain or REDUCE position size. Take a break, analyze what went wrong, then resume normal sizing.
Taking trades below 2:1 risk-reward because you're "bored" or "need to be in the market." Professional traders wait for 2:1+ setups. Patience is a competitive advantage.
Risking >3% per trade as a non-professional. A 5-trade losing streak (common!) at 5% risk = 25% account drawdown. At 2% risk, same streak = 10% drawdown - manageable and recoverable.
Trading without stop losses or using "mental stops." Mental stops don't work - emotions override logic. Always set hard stop losses immediately after entry. No exceptions.
Having 5 altcoin positions at 2% risk each = 10% total risk since altcoins correlate. If BTC dumps, all positions hit stops simultaneously. Reduce per-trade risk when positions are correlated.
Taking every marginal setup because you calculated position size "properly." Position sizing doesn't make bad trades good. Quality > quantity. Take only high-conviction, 2:1+ risk-reward setups.
Not journaling trades or calculating actual win rate and average risk-reward. You can't improve what you don't measure. Track every trade: entry, exit, size, reason, outcome, lesson learned.
Never risk more than 2% per trade until you have 100+ profitable trades proving your edge. Even then, 3-5% maximum on exceptional setups only.
Never have more than 6% total risk across all open positions combined. Three trades at 2% each = 6% total. If one position is open at 2%, max 4% for additional positions.
Never take trades below 2:1 risk-reward unless you have statistically proven edge at lower ratios (60%+ win rate over 100+ trades). Wait for quality setups.
Take 30-50% profits at 1:1 risk-reward, move stop to break-even, let rest run to 2-3:1. This guarantees some profit on winning trades while capturing big moves.
Once trade moves 1:1 in your favor, move stop to break-even (no loss). At 2:1, trail stop to 1:1 (lock profit). This creates "free trades" with unlimited upside.
Set maximum daily loss (e.g., 4% of account). If hit, stop trading for the day. This prevents emotional spiral and catastrophic loss days. You can always trade tomorrow.
Risk management isn't just mathematical - it's psychological. Most traders know the rules but break them under emotional pressure. Successful risk management requires discipline, patience, and emotional control. Your biggest enemy isn't the market; it's your own psychology.
Discipline comes from preparation, not willpower. Write your risk rules down. Review them before every trading session. Use hard stop losses (not mental ones). Keep a journal of every trade. Calculate position size BEFORE entering. Set alerts for your take profit and stop loss. Make following rules automatic so emotions can't override logic. The traders who survive long-term are those who treat risk management as non-negotiable.