Percent of capital risked is the share of your account you put at stake on a trade: the distance between your entry and your stop, times the position size, against capital. It is the one setting that acts on all your statistics at once.
The mean, and the spread around it
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Percent of capital risked answers a simple question: if this trade goes to its stop, how much of the account leaves? The calculation needs only three numbers, the distance to the stop, the position size and the capital, and it is done before entering, never after.
It is the only parameter in trading acting as a general multiplier. Doubling risk per trade doubles the expected gain and doubles the drawdown, without improving the quality of decisions one bit. That is also why it is the first lever to look at when an account behaves badly: there is nothing to learn in order to set it.
The average, meanwhile, is almost always reassuring and almost always misleading. What decides an account's survival is not average risk but the risk of the few largest trades, and an average of 1% can perfectly well contain three trades at 4%.
% capital risked = (|entry − stop| × position size) ÷ capital × 100
The reference capital is the balance at the time of the trade, not the starting balance. On a growing account, the difference quickly becomes significant.
A trade with no stop has no risk percentage. You cannot assign it one, and counting it as zero is the worst possible approximation.
Real risk can exceed the calculated one: an opening gap crosses a stop without stopping there. The percentage describes an intention, not a guarantee.
| % risked per trade | What it implies |
|---|---|
| 0.25 to 0.5% | Very cautious. The account survives anything, and it grows slowly. |
| 0.5 to 1% | The most common order of magnitude among traders who last. |
| 1 to 2% | Aggressive but workable if the win rate is decent and drawdown watched. |
| 2 to 5% | A run of ten losses, which happens, removes a quarter to half the capital. |
| above 5% | The account no longer depends on the method but on the order the trades fall in. |
The last row describes a tipping point, not a gradation. Beyond a certain risk per trade, the order in which gains and losses arrive matters more than their proportion. Two traders with exactly the same trades, in two different orders, end up one profitable and one at zero. No result statistic warns of that.
The second point is the one in the diagram at the top: the average does not describe the risk. An average of 1.4% made of ten trades at 0.8% and two at 4% has nothing in common with an average of 1.4% where every trade is at 1.4%. It is the two large ones that will decide the worst drawdown, and the average dissolves them.
This trade commits 3% of the account, three times the accepted order of magnitude. Ten losing trades in a row at that level remove more than a quarter of the capital, which happens roughly once a year to any system with a win rate under 50%. The setting is made before entering, and it requires no skill.
It is the only lever acting directly and proportionally on maximum drawdown. Halving the risk roughly halves the drawdown, without touching a single entry rule, and with nothing to learn.
That is why it comes before everything else when a method is profitable but unliveable. Many traders rebuild their strategy when their problem lay entirely in that setting.
Almost every trader has a figure in mind, and almost none has checked it matches their trades. The spread says it in one picture: if the values scatter from 0.3 to 3%, the announced rule does not exist in fact.
The gap rarely comes from a deliberate decision. It comes from a stop wider than usual that was not offset by a smaller size, and that kind of trade is always among the largest in the series.
The first flaw is that the average reassures. It is almost always close to what the trader announces, because most trades respect the rule. It is the few exceptions that decide the drawdown, and they vanish in an average exactly as they vanish from memory.
The second is the reference capital. Relating risk to the starting balance rather than to the current one gives percentages that fall on their own as the account grows, so a real risk that rises without anyone deciding it. Over a year of growth, the gap becomes considerable.
The third is believing this percentage is a guarantee. It describes planned risk, not risk endured: an opening gap crosses a stop without stopping there, and slippage widens it. On an account at 5% per trade, those gaps are no longer details.
The classic mistake. Being reassured by the average. It is almost always close to the announced rule, because most trades respect it. It is the two or three exceptions that decide the worst drawdown, and an average dissolves them exactly as memory erases them.
| Indicator | Formula | What it measures | When to use it |
|---|---|---|---|
| % capital risked | (entry − stop) × size ÷ capital | What you commit per trade | Setting the depth of bad runs |
| Maximum drawdown | (peak − trough) ÷ peak | What it produced, as worst decline | Observing the result of the setting |
| Average R | result ÷ risk taken | What a trade returns, in risk units | Judging the decision, not the size |
| Trades with a stop | trades with a stop ÷ total | How many trades had a defined risk | Knowing what the calculation covers |
Sort your trades by percent risked and look at the five largest. If they are two to three times above the others, your rule does not exist in fact, and those five trades will decide your worst drawdown.
This is the exact place the rule gets lost. A stop further away than usual commits more capital at constant size, and nobody notices at the moment of placing the order. Size is recomputed on every trade, not once and for all.
On a growing account, a fixed amount becomes a falling percentage, so a relative risk drifting with no decision. On a shrinking account it is the reverse, and it is worse.
Between 0.5 and 1% is the most common order of magnitude among traders who last. Above 2%, a run of ten losses, which happens to everyone, removes a quarter of the capital. Above 5%, the result depends more on the order the trades fall in than on the method.
Multiply the distance between your entry and your stop by the position size, then divide by your capital. On a $20,000 account with a 30-pip stop and $20 per pip, the risk is $600, that is 3%.
Because it is almost always close to the announced rule, most trades respecting it. It is the few outlier trades that decide the worst drawdown, and they vanish in an average. Sort your trades by percent risked instead and look at the five largest.
On the balance at the time of the trade, not on the starting balance. On a growing account, keeping a fixed risk amount makes the percentage fall on its own, so the relative risk drifts with no decision taken. On a shrinking account it is the reverse, and more dangerous.
No. It describes planned risk, not risk endured. An opening gap crosses a stop without stopping there, and slippage widens it. The higher the percentage, the more those gaps weigh: at 5% per trade, a single gap can cost the equivalent of two or three normal losses.
Tradoshi computes average % capital risked from the stop and size returned by your broker, with nothing to type in. It is a metric in the Reports screen, next to average R and maximum drawdown, and that neighbourhood is no accident: the cause, the decision and the effect sit on the same line.
The check described above uses the Risk taken dimension, which sorts your trades by risk band instead of averaging them. That is where the few outlier trades appear, and it is exactly what the average dissolves. The Risk management screen then lets you set the matching rules.
To go deeper on this: read the full guide. Every term is gathered in the glossary.