Risk Management

The 1% rule, R multiples, risk-to-reward and drawdown maths.

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1. 00:00Risk Management. The 1% rule, R multiples, risk-to-reward and drawdown maths.
2. 00:05Risk management, not prediction, is what keeps a trader alive.
3. 00:10Define risk in R — one R is the money lost if the stop is hit.
4. 00:16A trade targeting three times its stop is a 3R trade.
5. 00:21Reference table: Drawdown, Gain needed to recover.
6. 00:26Expectancy (js): function expectancy(winRate, avgWinR, avgLossR = 1) {…
7. 00:31Risk a fixed small percentage (0.5-1%) per trade.
8. 00:36Every position has a stop loss before it is opened.
9. 00:41Cap total risk across correlated pairs (EUR/USD and GBP/USD move together).
10. 00:46Set a daily and weekly loss limit, then stop trading.
11. 00:51Note: A 40% win rate at 3R is highly profitable. A 90% win rate at 0.1R is not. Win rate alone means nothing without R.

Risk management, not prediction, is what keeps a trader alive. Define risk in R — one R is the money lost if the stop is hit. A trade targeting three times its stop is a 3R trade.

function expectancy(winRate, avgWinR, avgLossR = 1) {
  return winRate * avgWinR - (1 - winRate) * avgLossR;
}
// 40% win rate at 3R
console.log(expectancy(0.4, 3).toFixed(2) + "R per trade");

• Risk a fixed small percentage (0.5-1%) per trade.
• Every position has a stop loss before it is opened.
• Cap total risk across correlated pairs (EUR/USD and GBP/USD move together).
• Set a daily and weekly loss limit, then stop trading.