The definitions the whole folder runs on
| Term | What it means here |
|---|---|
| Planned risk | The amount budgeted for one idea if it is wrong — a plan, not a cap. A gap or a worse fill can make the realized loss larger. |
| R | One unit of planned risk for a trade: distance × size, fixed before the trade. Results are recorded against that budget — a $300 actual loss on a $250 budget is −1.2R, not −1R. |
| Size | Planned risk ÷ distance — always rounded down, never up. |
| Capital required | Size × price. A different number from planned risk; a trade must pass both checks. |
| The smaller-of rule | Size is the smaller of what the risk budget permits and what free capital funds — otherwise, pass. |
Sizing, worked once (Lesson 19)
Budget $250, distance $4, price $50: $250 ÷ $4 = 62.5, rounded down to 62 shares. Planned risk: 62 × $4 = $248. Capital required: 62 × $50 = $3,100. With only $2,000 free, capital caps the size at 40 shares and the planned risk falls to 40 × $4 = $160. (Fractional shares, where offered, would plan exactly $250 on 62.5 shares and require $3,125 — the course assumes whole shares unless a plan says otherwise.)
Streaks and drawdowns compound
Losses are charged on the shrinking balance, so percentages do not add flat: at 1% planned risk per trade, three straight losses cost about −2.97% (0.99 × 0.99 × 0.99), and five cost about −4.90% — and that assumes every exit fills at its planned level; a gap can cost more. Recovery is asymmetric the same way:
| If the account falls | It must then gain | On a $25,000 account |
|---|---|---|
| −10% | +11% | $22,500 must earn $2,500 |
| −20% | +25% | $20,000 must earn $5,000 |
| −30% | +43% | $17,500 must earn $7,500 |
| −40% | +67% | $15,000 must earn $10,000 |
| −50% | +100% | $12,500 must earn $12,500 |
Same average, different ending (Lesson 21): two years averaging +5% — one path +20% then −10% turns $100 into $108; the smooth path +5% then +5% turns it into $110.25. The loss was charged on the enlarged base.
Expectancy, in R (Lesson 26)
Expectancy = win rate × average win − loss rate × average loss. The course’s example: 0.4 × 2R − 0.6 × 1R = +0.20R a trade — before costs, with breakeven trades counted as 0R. A figure from your own journal is an estimate with wide sampling uncertainty, not proof of a durable edge, at fifty trades or a hundred.
Keep the set
The other reference sheets: Order types · Instrument comparison · Financial statements · Reading an edition. All five hang off the Education hub.
Summarizes Lessons 18–22 and Lesson 26, as reviewed October 24, 2026.