Risk-Reward Ratio & Position Sizing

Most retail traders obsess over picking winners. The truth? Position sizing and R:R ratio matter 10x more than win rate.

The Maths That Surprises Everyone

Let's compare two traders:

Trader A: 65% Win Rate, 1:1 R:R

• 100 trades, ₹1,000 risk per trade
• 65 wins × ₹1,000 = +₹65,000
• 35 losses × ₹1,000 = -₹35,000
• Net: +₹30,000

Trader B: 35% Win Rate, 1:3 R:R

• 100 trades, ₹1,000 risk per trade
• 35 wins × ₹3,000 = +₹1,05,000
• 65 losses × ₹1,000 = -₹65,000
• Net: +₹40,000 ← higher profit despite WORSE accuracy

This is why pro traders accept being "wrong" 60-70% of the time. Edge comes from asymmetric payoffs, not from being right.

The Three Levers You Control

| Lever | What Pros Do | What Retail Does | |-------|--------------|------------------| | Risk per trade | 0.5–2% of capital | 5–25% (over-leveraged) | | R:R ratio | Minimum 1:2, often 1:3+ | Random, often 1:1 or worse | | Position size | Calculated from SL distance | Round-number quantities (100, 200 sh) |

How to Calculate Position Size

The formula is simple:

Quantity = (Capital × Risk %) / (Entry Price – Stop Loss Price)

Worked Example

• Capital: ₹5,00,000
• Risk per trade: 1% = ₹5,000
• Entry: ₹250
• Stop Loss: ₹240
• Risk per share: ₹10

Quantity = ₹5,000 / ₹10 = 500 shares

Investment = 500 × ₹250 = ₹1,25,000 (25% of capital deployed, only 1% at risk)

If your target is ₹280:

• Reward per share = ₹30
• R:R = 1:3
• Total potential gain = ₹15,000

Use Our Risk Calculator

Punching numbers into a spreadsheet kills momentum. Our standalone Risk & Reward Calculator does this in real-time:

• Enter Entry / SL / Target / Capital / Risk %
• See Quantity, Investment, Total Risk, Total Reward, R:R Ratio instantly
• Long & Short setups both supported
• Color-coded badges: Strong (≥1:2) · Decent (1:1.5–1:2) · Weak (<1:1.5)

The "Rule of 10" for Long-Term Survival

If you risk 1% per trade and lose 10 trades in a row (very unlikely but possible), you'd lose only 9.6% of capital — fully recoverable.

If you risk 10% per trade and lose 10 in a row, you've lost 65% of your capital. Recovering from that requires +186% returns.

This is why drawdown management > everything else in trading longevity.

Quick Mental Checklist Before Every Trade

1. ✅ Where exactly is my stop loss? (not "around ₹240" — exactly ₹240)
2. ✅ What's my target? Is R:R ≥ 1:2?
3. ✅ How much am I risking in ₹? Is it within my 1-2% rule?
4. ✅ Am I sizing this trade based on volatility, or by random round number?
5. ✅ Will I follow my SL even when emotion screams "give it more room"?

If you can't answer #5 with certainty, reduce position size until you can.

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Trading involves risk of capital loss. Use position sizing to ensure no single trade can damage your account.