Position Sizing: The 1R System

The inversion

The whole system is one sentence: decide the dollars first, place the stop where the chart says, and let the size be whatever the division produces. That dollar amount is your R, the unit every future decision gets measured in.

The worked math: funded-account version

Same setup, three stops: watch the size move

This is the part that rewires intuition: a wider stop doesn't mean more risk. It means a smaller position at the same risk. 1R = $60 on gold micro futures ($10/point):

• Tight scalp, $2 stop → $20 per contract → 3 contracts.
• Intraday swing, $6 stop → $60 per contract → 1 contract.
• Wide structure stop, $12 stop → $120 per contract → half-size or skip: the account can't afford this trade at 1R.

Every trade risks the same $60, so a loss is always exactly 1R, a 2:1 winner is always +2R, and your P&L becomes a clean sequence of R-multiples instead of random dollar noise. That's the language expectancy speaks (next guide).

Where traders fall

• Fixed contracts, variable stops: '2 lots always' means the tight-stop trade risks $80 and the wide one $400. Same conviction, 5× the risk, decided by nobody.
• Sizing off the sticker balance instead of the drawdown: the funded-account classic (three losers to breach instead of fifty).
• Letting the platform's margin allowance set the ceiling. Margin measures the loan, not the danger.
• Sizing up after wins and after losses, for opposite emotional reasons, with the same mathematical result.

Make it a system tonight

• Fix your R: 1–2% of your REAL account (the drawdown on funded accounts). Write the dollar number where you can see it.
• Pre-compute a size card for your instruments (at $60 R, MES: $40/8pt stop, MNQ: $2/pt, gold micro: $10/pt). No mid-trade arithmetic.
• The skip rule: if the chart's stop makes size zero, the trade is a skip, not a 'mental stop'.
• Audit last month: multiply each trade's stop distance by its size. If the dollar risk varied more than 2×, you weren't sizing. You were guessing.