Position Sizing, Risk-Reward Ratio, and the Break-Even Win Rate
October 29, 2026
Controlling how much you can lose on a single trade matters more than the entry. Position sizing starts from the amount you are willing to risk: position size = (account × risk percentage) ÷ (entry price − stop price). With a $50,000 account, risking 1% means $500. If you buy at $50 with a stop at $47, the risk per share is $3, so you can buy $500 ÷ $3 = 166 shares, a $8,300 position (16.6% of the account).
If the stop is hit, you lose about $498, or 1% of the account. A target at $59 offers $9 per share of reward for $3 of risk, a reward-to-risk ratio of 3:1.
Skip the math and get your answer instantly:
Open the Percentage Calculator →Break-Even Win Rate
With a reward-to-risk ratio of R, the break-even win rate is 1 ÷ (1 + R). At 1:1, you need to win 50% of trades; at 2:1, 33.3%; at 3:1, 25%. Expectancy per trade, in units of risk, is: win rate × R − loss rate × 1. A trader who wins 40% of the time with a 2:1 ratio has an expectancy of 0.4 × 2 − 0.6 × 1 = +0.2R per trade, or $100 per trade when 1R = $500. Over 100 trades, that is about $10,000, assuming the statistics hold (before commissions and slippage). A trader who wins 60% with a 0.5:1 ratio has 0.6 × 0.5 − 0.4 = −0.1R and loses money despite winning most trades.
| Reward-to-risk | Break-even win rate | Expectancy at 40% win rate (R) |
|---|---|---|
| 0.5 : 1 | 66.7% | -0.40 |
| 1 : 1 | 50.0% | -0.20 |
| 2 : 1 | 33.3% | +0.20 |
| 3 : 1 | 25.0% | +0.60 |
Risk of Ruin
Fixed fractional sizing (risking 1% to 2% per trade) limits the damage of a losing streak: after 10 consecutive losses at 1%, the account is down about 9.6% (1 − 0.99¹⁰), and after 20 losses, 18.2%. At 10% risk per trade, 10 losses leave the account down 65%, and recovering requires a gain of 187%. Smaller risk per trade also keeps you in the game long enough for the edge to work.
Practical Considerations
Stops placed too tight get triggered by normal noise; too wide reduce the position size. Gaps can cause losses bigger than planned, and costs reduce the edge. Don't take a trade just because it has a nice ratio: the probability estimate matters. Keep records to measure your real win rate and average reward-to-risk.
Caveats
Trading is risky, and most retail traders lose money. This article is a mathematical illustration, not investment advice.
Frequently Asked Questions
How do I compute position size?
Account risk in dollars divided by the per-share distance to the stop.
What is the break-even win rate for a 2:1 reward-to-risk?
33.3%.
What is expectancy?
The average profit per trade, in risk units: win rate × R − loss rate.
Why risk only 1% per trade?
To survive losing streaks.
Does a high win rate guarantee profit?
No, the reward-to-risk ratio matters too.