Why is Risk Sizing so important for your chances of trading survival? Again, it comes down to simple arithmetic when trying to put the probabilities on your side. For example, if you have a win ratio of 30%, an average win RVR of 3, and a risk size of 2% on each trade; you have less than a 1% chance of Risk of Ruin (blowing up your account). Another example, if you have a win ratio of 35%, an average win RVR of 2, and a risk size of 1%; you again have less than 1% chance of Risk of Ruin. Due to these statistical metrics we at R3 Trader believe that a trader should never risk any more than 2% (but really prefer no more than 1%) of their account balance on any given trading opportunity for proper risk management. This provides for a mathematical edge that most traders often ignore. 

Risk Sizing is the most important aspect of any system, because if you have a good, positive expectancy system, then most of your profits will come from efficient Risk Sizing strategies. You can typically use a basic or fairly simple system and make money trading if you adequately size your trades.

Below are options R3 Trader offers you for Risk Sizing:

% Maximum

This feature allows the trader the ability to designate an exact maximum percentage of their account balance based on the trader’s designated number of ticks to represent their “Stop Loss” Order. This correct trade size calculation would be put at risk on every trade executed adhering to the trader’s specified risk tolerance level and trading plan.

 

Bar Count

This feature allows the trader to properly risk size based on the most recent bar count look back pivot highs and lows. The trader may also provide an “Offset” parameter so that they may place the “Stop Order” with a set tick movement above or below the most recent pivot high or low. 

 

Volatility

This feature allows the trader to properly risk size while factoring in the volatility range of a predetermined period setting using the well-known indicator, Average True Range (ATR). This range would be a great measurement of what the trader’s “Stop Loss” Order should be for the trade’s current market conditions and at the same time use the correct Risk Sizing calculation that adheres to their defined strategy per trade.

Additional Risk Sizing Features

Include Commission

This feature allows the trader to factor in the cost of each trade transaction to be included in the correct calculation of contracts to trade while adhering to their defined strategy per trade. Technically, if a trader were not to account for the cost of the trade transaction then the monetary value at risk plus the cost of trade may possibly be more than the specified risk per trade. 

 

Global Risk of Trades

This feature when elected to be included is the option of when Risk Sizing; to factor in the worst case scenario with all current live trades and all associated risk on the table in a singular trading account at the very moment of a new trade order. The risk is calculated from the accumulation of all active open trades that currently present the possibility of monetary loss from its associated “Stop Loss” Order value. 

 

Limit Order for Accuracy

This feature allows the trader to select to only use Limit Orders for execution. Once you find your entry if this box is checked it will enter a Limit Order at the market price of the time you clicked. This way you fill the trade at the specific price you want and not at market.

 

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U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Futures and options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. 

These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

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