Glossary

Risk per trade

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Risk per trade is defined by the stop distance and the position size together: entry at 2400, stop at 2390, and a size where each point is worth $10 means $100 at risk. Expressed as a percentage of equity, it becomes comparable across trades and accounts.

Small per-trade risk keeps sequences of losses — which every strategy has — from compounding into unrecoverable drawdowns. At 1% risk, ten straight losses cost roughly 9.6% of the account. At 10% risk, the same streak costs 65%.

Covered in depth in Lesson 07: Positionsgrößenbestimmung: die Arithmetik, die Sie am Leben hält.

Related terms

• Position sizing — Deciding how much to risk on each trade — the discipline that determines whether losing streaks are survivable.
• Stop loss — An order that closes a position automatically at a predefined worse price, capping the loss on a trade.
• Drawdown — The decline from an account's peak value to its subsequent low — the number that measures how painful a strategy is to hold.