{"format":"alysly-page/1","url":"https://alysly.com/learn/risk-and-position-sizing/","json":"https://alysly.com/json/learn/risk-and-position-sizing/index.json","lang":"en-US","title":"Position Sizing: R-Multiples, Stops and Expectancy","description":"How to think in R-multiples, size a position from the stop distance, and why drawdown arithmetic beats any hit rate.","published":"2026-08-02T15:41:33+02:00","modified":"2026-11-01T18:26:04+01:00","alternates":[{"lang":"de-DE","url":"https://alysly.com/de/lernen/risiko-und-positionsgroesse/","json":"https://alysly.com/json/de/lernen/risiko-und-positionsgroesse/index.json"}],"about":"Machine-readable version of the page at url. It contains the text, tables and key figures published there, but not the interactive charts and tools.","breadcrumb":[{"name":"Investing & Trading Basics","url":"https://alysly.com/learn/"},{"name":"Level 1","url":"https://alysly.com/learn/#level-1"},{"name":"Risk, Stops and Position Sizing","url":"https://alysly.com/learn/risk-and-position-sizing/"}],"content":[{"type":"paragraph","text":"Level 1 Reading Charts · Part 6/7"},{"type":"heading","level":1,"text":"Risk, Stops and Position Sizing"},{"type":"paragraph","text":"By Alexander Bock, founder and data analyst","links":[{"text":"Alexander Bock","href":"https://alysly.com/about/"}]},{"type":"paragraph","text":"This article covers the one part of technical analysis whose effect is mathematically settled. Everything else in this course is interpretation. Position sizing is arithmetic."},{"type":"heading","level":2,"id":"thinking-in-r","text":"Thinking in R"},{"type":"paragraph","text":"The distance between entry and stop is one unit of risk – one R. Every result is measured in that unit. A trade that returns twice the risk is a +2R trade, whether that was 40 or 4,000 in currency."},{"type":"image","src":"https://alysly.com/img/ta/r-multiple.a5eb398fb0068fb0fc945e663508a4a8e7fcaf99dc474354b7533d68a9da7194.webp","alt":"Position-sizing diagram with entry, stop and target expressed as multiples of risk"},{"type":"paragraph","text":"The distance from entry (1) to stop (2) is one unit of risk — one \"R\". Every target is measured in that unit: (3) sits two R above entry. Thinking in R makes trades comparable regardless of price level or position size, and shows immediately whether your hit rate fits your reward-to-risk ratio."},{"type":"paragraph","text":"The benefit is comparability. Trades in different instruments, at different price levels and in different position sizes turn into a single series of numbers. From that series you can read the hit rate and the average result, and no single large winner dominates the statistics."},{"type":"heading","level":2,"id":"the-stop-determines-the-position-size","text":"The Stop Determines the Position Size"},{"type":"paragraph","text":"The order of the steps is decisive, and most people run it backwards. The correct sequence is:"},{"type":"list","ordered":true,"items":["Fix the risk per trade as a share of the account. A common range is 0.5 to 2 percent.","Take the stop distance from the chart. That is the point where the idea is wrong, not the point where your preferred loss would be reached.","Calculate the position size: risk in currency divided by the stop distance per unit."]},{"type":"paragraph","text":"An example: an account of 20,000 and 1 percent risk gives 200. Entry at 50, stop at 46, so the distance is 4. 200 / 4 = 50 units, a position worth 2,500."},{"type":"paragraph","text":"If you move the stop closer, the number of units rises while the risk in currency stays the same. That is the point: you do not choose the position size, you choose the risk. The size follows from it."},{"type":"heading","level":2,"id":"expectancy","text":"Expectancy"},{"type":"paragraph","text":"The hit rate on its own says nothing. What matters is the expectancy per trade:"},{"type":"paragraph","text":"E = (win rate × average win in R) − (loss rate × average loss in R)"},{"type":"paragraph","text":"With a hit rate of 40 percent, an average win of +2R and an average loss of −1R: 0.4 × 2 − 0.6 × 1 = +0.2R per trade. So a system that is wrong six times out of ten is still profitable. The reverse also holds. A system with an 80 percent hit rate that wins +0.5R and loses −3R is clearly negative: 0.8 × 0.5 − 0.2 × 3 = −0.2R."},{"type":"paragraph","text":"If you quote the hit rate alone, you leave out half of the calculation."},{"type":"heading","level":2,"id":"drawdown-arithmetic","text":"Drawdown Arithmetic"},{"type":"image","src":"https://alysly.com/img/ta/drawdown-math.2a8986e35f51c8fc79898bbe8f4aaea904c43659b67ba8b65c466f9345aeff1d.webp","alt":"Bar comparison of a percentage loss versus the gain required to break even"},{"type":"paragraph","text":"Loss and recovery are not symmetric: the gray bar is the loss, the red bar the gain needed afterwards just to get back to even. Up to roughly 20% the gap is small; from 50% it explodes. Capping losses is therefore not caution, it is arithmetic."},{"type":"paragraph","text":"Loss and recovery are not symmetric. After a loss of 50 percent you need 100 percent to get back to even; after 70 percent you need 233 percent. This is why limiting losses matters more than the hit rate: one large loss costs more than a long series of small wins brings in."},{"type":"paragraph","text":"The same arithmetic sets the ceiling for the risk per trade. With 2 percent risk and ten losses in a row, the account is down by roughly 18 percent. Such a streak is nothing exotic at a hit rate of 40 percent. With 5 percent risk per trade it would be 40 percent, and the recovery becomes a project of several years."},{"type":"paragraph","text":"You can simulate how such streaks spread out over many runs. The Monte Carlo tool shows the range of possible paths instead of a single one.","links":[{"text":"Monte Carlo tool","href":"https://alysly.com/tools/monte-carlo/"}]},{"type":"heading","level":2,"id":"where-the-stop-belongs","text":"Where the Stop Belongs"},{"type":"paragraph","text":"A stop marks the point at which the idea is wrong. It does not mark the amount you are willing to lose. Confusing the two is the most common mistake in this chapter."},{"type":"paragraph","text":"In practice the stop sits beyond the zone whose break proves the idea wrong, plus a buffer for normal fluctuation. Placed directly below the last low, it gets hit by exactly the noise that every market contains. Later, in your own sample of trades, that shows up as a series of near misses that all ended just short of the target.","links":[{"text":"your own sample of trades","href":"https://alysly.com/learn/testing-a-pattern/"}]},{"type":"heading","level":2,"id":"next","text":"Next"},{"type":"paragraph","text":"The last article of this level puts technical analysis in context: what it can actually do, and what the evidence does not support."},{"type":"list","ordered":false,"items":[{"text":"Previous Volume: The Second Opinion on Price","href":"https://alysly.com/learn/volume/"},{"text":"Next What Technical Analysis Can and Cannot Do","href":"https://alysly.com/learn/what-technical-analysis-can-do/"}]},{"type":"heading","level":2,"text":"Indices"},{"type":"table","caption":"Indices, performance over the selected period","columns":["Index","1M"],"rows":[[{"text":"Dow Jones","href":"https://alysly.com/markets/indices/dow-jones/"},{"text":"+1.0%","data":{"m1":"+1.0%","m3":"-4.3%","m6":"+4.9%","ytd":"+7.6%","max":"+30.0%"}}],[{"text":"S&P 500","href":"https://alysly.com/markets/indices/sp500/"},{"text":"-2.6%","data":{"m1":"-2.6%","m3":"-2.2%","m6":"+4.2%","ytd":"+10.6%","max":"+35.6%"}}],[{"text":"MSCI World","href":"https://alysly.com/markets/indices/msci-world/"},{"text":"-2.0%","data":{"m1":"-2.0%","m3":"-2.4%","m6":"+3.7%","ytd":"+10.0%","max":"+35.0%"}}],[{"text":"MSCI ACWI","href":"https://alysly.com/markets/indices/msci-acwi/"},{"text":"-3.3%","data":{"m1":"-3.3%","m3":"-3.0%","m6":"+2.3%","ytd":"+10.2%","max":"+41.5%"}}]]},{"type":"heading","level":2,"text":"ETFs"},{"type":"table","caption":"ETFs, performance over the selected period","columns":["Fund","1M"],"rows":[[{"text":"SPDR S&P 500 ETF Trust SPY","links":[{"text":"SPDR S&P 500 ETF Trust","href":"https://alysly.com/markets/etfs/us/spy/"}]},{"text":"-2.6%","data":{"m1":"-2.6%","m3":"-2.2%","m6":"+4.2%","ytd":"+10.6%","max":"+35.6%"}}],[{"text":"Vanguard S&P 500 ETF VOO","links":[{"text":"Vanguard S&P 500 ETF","href":"https://alysly.com/markets/etfs/us/voo/"}]},{"text":"-2.6%","data":{"m1":"-2.6%","m3":"-2.2%","m6":"+4.2%","ytd":"+10.6%","max":"+34.1%"}}],[{"text":"iShares Core MSCI World UCITS ETF USD (Acc) EUNL","links":[{"text":"iShares Core MSCI World UCITS ETF USD (Acc)","href":"https://alysly.com/markets/etfs/ishares-core-msci-world-ucits-etf-usd-acc/"}]},{"text":"-2.0%","data":{"m1":"-2.0%","m3":"-2.3%","m6":"+4.3%","ytd":"+10.6%","max":"+487.5%"}}],[{"text":"Xtrackers MSCI Emerging Markets UCITS ETF 1c XMME","links":[{"text":"Xtrackers MSCI Emerging Markets UCITS ETF 1c","href":"https://alysly.com/markets/etfs/xtrackers-msci-emerging-markets-ucits-etf-1c/"}]},{"text":"-9.4%","data":{"m1":"-9.4%","m3":"-4.1%","m6":"-3.3%","ytd":"+14.0%","max":"+93.0%"}}]]},{"type":"heading","level":2,"text":"Stocks"},{"type":"table","caption":"Stocks, performance over the selected period","columns":["Stock","1M"],"rows":[[{"text":"NVIDIA Corporation NVDA","links":[{"text":"NVIDIA Corporation","href":"https://alysly.com/markets/stocks/nvidia-corporation/"},{"text":"United States","href":"https://alysly.com/markets/stocks/browse/?country=United%20States"}]},{"text":"-13.5%","data":{"m1":"-13.5%","m3":"-2.5%","m6":"+5.2%","ytd":"+10.8%","max":"+62.2%"}}],[{"text":"Apple Inc. AAPL","links":[{"text":"Apple Inc.","href":"https://alysly.com/markets/stocks/apple-inc/"},{"text":"United States","href":"https://alysly.com/markets/stocks/browse/?country=United%20States"}]},{"text":"-0.3%","data":{"m1":"-0.3%","m3":"+7.3%","m6":"+16.8%","ytd":"+22.1%","max":"+45.8%"}}],[{"text":"Tesla Inc. TSLA","links":[{"text":"Tesla Inc.","href":"https://alysly.com/markets/stocks/tesla-inc/"},{"text":"United States","href":"https://alysly.com/markets/stocks/browse/?country=United%20States"}]},{"text":"+5.2%","data":{"m1":"+5.2%","m3":"+21.7%","m6":"+2.3%","ytd":"-11.4%","max":"+65.3%"}}]]},{"type":"paragraph","text":"Data note 1","href":"#dn-1"},{"type":"heading","level":2,"text":"More Studies"},{"type":"list","ordered":false,"items":[{"text":"Jul 21, 2026 Collectibles ×5.4 for the same cards, matched-model index, Mar 2022 – Aug 2026 Is the Pokémon Card Market in a Bubble? 4,159 Sales Analyzed Prices for PSA-graded cards multiplied. Measured on the same cards they rose 438%, while the raw median shows 786% because pricier cards came up for sale later.","href":"https://alysly.com/analysis/pokemon-card-market-bubble/"},{"text":"May 19, 2026 Crypto 45.6% Bitcoin’s annualized volatility, Jul 2024 – Sep 2026 Bitcoin in Investment Portfolios: The Real Numbers Bitcoin is calmer than it was and still about three times as volatile as the stock market. It moves with stocks, not with gold.","href":"https://alysly.com/analysis/bitcoin-investment-portfolios/"},{"text":"Mar 17, 2026 Wealth €1.2m needed for €3,000 a month indefinitely at a 3% real return Living Off Your Returns: What It Really Takes The capital you need is arithmetic. The return you assume is a guess, and it can triple the answer.","href":"https://alysly.com/analysis/living-off-returns/"}]},{"type":"paragraph","text":"View all studies","href":"https://alysly.com/analysis/#studies"},{"type":"heading","level":2,"text":"Learn"},{"type":"list","ordered":false,"items":[{"text":"What Technical Analysis Can and Cannot Do Base rates, selection bias, self-fulfillment – a sober assessment.","href":"https://alysly.com/learn/what-technical-analysis-can-do/"},{"text":"Candlestick Reversal Patterns Hammer, engulfing, star formations – construction, meaning, preconditions.","href":"https://alysly.com/learn/candlestick-reversal-patterns/"}]},{"type":"paragraph","text":"Course overview","href":"https://alysly.com/learn/"},{"type":"paragraph","text":"Updated Nov 1, 2026 · Content and figures checked Oct 19, 2026"},{"type":"heading","level":2,"id":"note-legend-h","text":"Data Notes"},{"type":"paragraph","text":"All calculations run automatically and are not investment advice."},{"type":"list","ordered":true,"items":[{"id":"dn-1","text":"Returns computed automatically from the price series, excluding dividends, taxes and costs."}]},{"type":"paragraph","text":"Data and methodology: Alysly · Responsible for content: Alexander Bock","links":[{"text":"Alysly","href":"https://alysly.com/methodology/"},{"text":"Alexander Bock","href":"https://alysly.com/about/"}]},{"type":"paragraph","text":"View all data notes","href":"https://alysly.com/notes/"}],"structured_data":[{"@context":"https://schema.org","@graph":[{"@type":"Organization","@id":"https://alysly.com/#org","name":"Alysly","url":"https://alysly.com/","logo":{"@type":"ImageObject","url":"https://alysly.com/img/icon-512.png","width":512,"height":512},"description":"Data-driven insights, transparent analysis and powerful tools for long-term investors.","email":"mail@alysly.com","contactPoint":{"@type":"ContactPoint","contactType":"customer 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Not investment advice. All data without guarantee. Financial information is analyzed and presented partly with AI assistance."}