Risk-first means you choose the loss you can accept before you think about the profit. Everything else — position size, leverage, target — follows from that one decision. It sounds obvious written down, and it is the opposite of how most people actually place a trade, which is to pick a size that feels normal and then find out afterwards what it costs when the stop is hit.
What R actually means
R is your risk on a single trade, expressed as one unit. If you decide that being wrong on this idea costs you £250, then 1R = £250 for that trade. A result of +2R means the trade returned twice what it risked; -1R means it hit the stop as planned; -1.6R means something went wrong with execution, because a planned loss should be close to -1R.
The reason to speak in R rather than currency is that it makes trades comparable. A £250 loss on a small account and a £250 loss on a large one are the same number but not the same event; -1R and -1R are the same event. Once every entry in your journal is denominated in R, you can add them up across markets, timeframes and account sizes and the total still means something. This is why the public journal on the performance page is scored in R and not in money.
The arithmetic
Position sizing is one formula with three inputs. Size equals the risk amount divided by the stop distance multiplied by the value per point:
size = riskAmount ÷ (stopDistance × valuePerPoint)
- riskAmount — the currency you accept losing on this idea. Typically a fixed fraction of the account, decided in advance, not per trade.
- stopDistance — the distance in points, pips or ticks between your entry and your invalidation. This comes from the chart, never from the size you would like to trade.
- valuePerPoint — what one point of movement is worth for one unit of the instrument. Check this against your broker's contract specification; it is the input people get wrong.
The order matters. Risk amount is a policy decision, stop distance is a market fact, and size is the output. If you ever find yourself adjusting the stop distance to justify a size, the formula is being run backwards and the number it produces is decoration.
A worked example
Take an account of £25,000 and a policy of risking 1% per idea. One per cent of £25,000 is £250, so riskAmount = £250 and, for this trade, 1R = £250.
Suppose the instrument is a cash index CFD where one point of movement is worth £1 per contract, so valuePerPoint = £1. You have marked your entry at 18,240 and your invalidation — the level that says the idea is wrong — at 18,190. The stop distance is 50 points.
Put those into the formula: 250 ÷ (50 × 1) = 5 contracts. That is the whole calculation. If price reaches 18,190 you lose 50 points × £1 × 5 contracts = £250, which is exactly 1R and exactly what you decided before you opened the position.
Note what did not enter the calculation: how confident you feel, how good the chart looks, and what happened on your last trade. None of those change the arithmetic, and letting them change the size is how a run of ordinary losses turns into an unusual one.
Same risk, three different stops
The most common objection to risk-first sizing is that a wide stop 'costs too much'. It does not — it costs exactly the same, because the size shrinks to compensate. Holding riskAmount at £250 and valuePerPoint at £1, the same account produces three quite different-looking positions:
- Stop 25 points → 250 ÷ (25 × 1) = 10 contracts. Risk if stopped: £250 = 1R.
- Stop 50 points → 250 ÷ (50 × 1) = 5 contracts. Risk if stopped: £250 = 1R.
- Stop 100 points → 250 ÷ (100 × 1) = 2.5 contracts, rounded down to 2. Risk if stopped: £200 = 0.8R.
Three positions, one risk. The wide-stop trade is not more expensive; it is smaller. And notice the third row: when the minimum tradable increment does not divide neatly, round down, never up. Rounding down leaves you slightly under your intended risk, which is a rounding error. Rounding up puts you over a limit you set for a reason.
If the rounded-down size comes out at zero, the trade is not available to you at this account size. That is information, not an invitation to shrink the stop.
The things that quietly break the number
Slippage and gaps mean a stop is an instruction, not a guarantee. A planned -1R can settle as -1.4R when a level is passed in a single print, and that is a normal cost rather than a mistake. What it does mean is that your policy fraction should be small enough that an occasional overshoot is survivable.
Correlation is the other one. Three open positions in instruments that move together are not three separate 1R risks; on a bad day they behave much more like one 3R risk. Cap total open risk as well as per-trade risk, and treat a correlated basket as a single idea when you count.
Finally, decide in advance whether your risk percentage is calculated on the starting balance for the month or on the live balance. Both are defensible. Recalculating opportunistically after a good day and forgetting to after a bad one is not.
When you size from risk, a losing trade costs a known, planned amount — roughly 1R — and losing streaks become an expected feature of the distribution rather than an emergency. That predictability is the entire point.
This article is educational content, not financial advice. It describes a process, not a prediction, and no process removes the risk of loss. Test anything you read here on a demo account and seek qualified advice for your own circumstances.
Written by
The Waiting Game desk
Writes the Waiting Game education library and logs every trade plan in the public journal — the ones that worked, the ones that did not, and the ones that never triggered.
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