Risk and psychology
Risk per trade (1R)
Definition
The dollars you lose if the stop is hit, set before you enter. Often 0.5% to 1% of the account.
Example
Say your account holds $20,000 and you risk 1% per trade, so 1R is $200. With entry at $50.00 and a stop at $48.00, that allows 100 shares, and ten stop-outs in a row at $200 each would cost $2,000, or 10% of the account. At 0.5%, 1R drops to $100 and the same streak costs $1,000.
Hypothetical numbers, for illustration only.
Also defined in
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