September 16, 2025 • By Tradestial Team
Risk Management and Position Sizing: A Practical Guide for Traders
How to size positions using risk-per-trade, ATR buffers, and R-multiples — with simple formulas and examples.
- risk management
- position sizing
- R-multiple
Position sizing is where most traders go wrong. A strong strategy still fails without consistent risk.
Risk-Per-Trade
Pick a fixed percent of equity (e.g., 0.5%–1%). This keeps losses small and predictable.
ATR-Based Stops
Use a multiple of ATR (e.g., 1.5× ATR) beyond a logical invalidation point to avoid noise stops.
R-Multiples
Define R as the distance between entry and stop. If you risk $100 per trade, a +3R win is +$300.
- Risk = Account * Risk% (e.g., $20,000 * 1% = $200)
- Size = Risk / (Entry - Stop)
- Target using RR (e.g., 2R or 3R) to maintain positive expectancy