Risk Management Workbook
Master the Math Behind Profitable Trading
📐 Essential Formulas Reference
Position Sizing
Dollar Risk = Account × Risk%
Position Size = Dollar Risk ÷ (SL Distance × $/point)
Risk:Reward
R:R = (TP – Entry) ÷ (Entry – SL)
or R:R = Reward ÷ Risk
Expectancy
E = (Win% × Avg Win) – (Loss% × Avg Loss)
or E = (WR × RR) – (1 – WR)
Recovery
Recovery % = Loss% ÷ (100% – Loss%)
e.g., 50% loss needs 100% gain
📊 Section 1: Position Sizing Exercises
Exercise 1.1: Basic Position Sizing – Forex
Calculate the correct position size for each forex trade.
Trade #1: EUR/USD
- Account: $10,000
- Risk per trade: 1%
- Entry: 1.0850
- Stop Loss: 1.0820
- Pip value (standard lot): $10/pip
Step 1 – Dollar Risk: $_______ = $10,000 × 1%
Step 2 – Pip Risk: _______ pips = 1.0850 – 1.0820
Step 3 – Dollar per Pip Risk: $_______
Position Size: _______ lots
Trade #2: GBP/JPY
- Account: $25,000
- Risk per trade: 0.5%
- Entry: 188.50
- Stop Loss: 189.00
- Pip value (standard lot): $6.50/pip
Dollar Risk: $_______
Pip Risk: _______ pips
Position Size: _______ lots
Trade #3: USD/CAD
- Account: $5,000
- Risk per trade: 2%
- Entry: 1.3650
- Stop Loss: 1.3700
- Pip value (standard lot): $7.30/pip
Dollar Risk: $_______
Pip Risk: _______ pips
Position Size: _______ lots
Exercise 1.2: Position Sizing – Futures
Calculate position size for futures contracts.
Trade #1: E-mini S&P 500 (ES)
- Account: $50,000
- Risk per trade: 1%
- Entry: 5,120
- Stop Loss: 5,105
- Contract value: $50/point
Dollar Risk: $_______
Point Risk: _______ points
Dollar per Contract Risk: $_______ × _______ = $_______
Position Size: _______ contracts
Trade #2: Micro Nasdaq (MNQ)
- Account: $10,000
- Risk per trade: 1.5%
- Entry: 18,450
- Stop Loss: 18,400
- Contract value: $2/point
Dollar Risk: $_______
Point Risk: _______ points
Position Size: _______ contracts
Trade #3: Gold Futures (GC)
- Account: $100,000
- Risk per trade: 0.5%
- Entry: 2,050
- Stop Loss: 2,042
- Contract value: $100/point
Dollar Risk: $_______
Point Risk: _______ points
Position Size: _______ contracts
Exercise 1.3: Position Sizing – Crypto
Calculate position size for cryptocurrency trades.
Trade #1: BTC Spot
- Account: $20,000
- Risk per trade: 2%
- Entry: $62,000
- Stop Loss: $60,500
Dollar Risk: $_______
% Distance to SL: _______%
Position Value: $_______ = $400 ÷ ____%
BTC Amount: _______ BTC
Trade #2: ETH with Leverage (10x)
- Account: $5,000
- Risk per trade: 1%
- Entry: $3,200
- Stop Loss: $3,150
- Leverage: 10x
Dollar Risk: $_______
% Move to SL: _______% (unleveraged)
Effective % with 10x: _______%
Position Value (leveraged): $_______
Margin Required: $_______
⚖️ Section 2: Risk:Reward Exercises
Exercise 2.1: Calculate R:R
Calculate the Risk:Reward ratio for each trade.
| # | Entry | SL | TP | Risk | Reward | R:R |
|---|---|---|---|---|---|---|
| 1 | 100 | 95 | 115 | _____ | _____ | _____ |
| 2 | 50 | 52 | 44 | _____ | _____ | _____ |
| 3 | 1.0850 | 1.0820 | 1.0940 | _____ | _____ | _____ |
| 4 | 18,500 | 18,450 | 18,650 | _____ | _____ | _____ |
| 5 | 2,048 | 2,055 | 2,027 | _____ | _____ | _____ |
Exercise 2.2: Find the Target
Calculate the target price needed to achieve the required R:R.
Trade #1 (Long): Entry: 100 | SL: 95 | Required R:R: 1:3
Risk = _____ | Reward needed = _____ × 3 = _____ | TP = _____
Trade #2 (Short): Entry: 2,050 | SL: 2,062 | Required R:R: 1:2.5
Risk = _____ | Reward needed = _____ | TP = _____
Trade #3 (Long): Entry: 62,000 | SL: 60,000 | Required R:R: 1:4
Risk = _____ | Reward needed = _____ | TP = _____
Exercise 2.3: Partial Take Profits
Calculate the blended R:R when taking partial profits.
Trade Setup:
- Entry: 100
- Stop Loss: 95 (5 points risk)
- Position: 4 contracts
- TP1: 110 – Close 2 contracts (50%)
- TP2: 120 – Close remaining 2 contracts
TP1 Profit: 2 contracts × _____ points = _____ points
TP2 Profit: 2 contracts × _____ points = _____ points
Total Profit: _____ points
Total Risk: 4 contracts × 5 points = _____ points
Blended R:R = _____ : _____
📈 Section 3: Expectancy Exercises
Exercise 3.1: Calculate Expectancy
Calculate the expectancy (expected value per trade) for each system.
System A:
- Win Rate: 60%
- Average Win: $200
- Average Loss: $100
E = (0.60 × $200) – (0.40 × $100)
E = $_____ – $_____ = $_____
System B:
- Win Rate: 35%
- Average Win: $400
- Average Loss: $100
E = (_____ × $_____) – (_____ × $_____)
E = $_____ – $_____ = $_____
System C:
- Win Rate: 70%
- Average Win: $80
- Average Loss: $150
E = (_____ × $_____) – (_____ × $_____)
E = $_____ – $_____ = $_____
Is this system profitable? _____
Exercise 3.2: Required Win Rate
Calculate the minimum win rate needed to break even at different R:R ratios.
Formula: Break-even Win Rate = 1 ÷ (1 + R:R)
| R:R Ratio | Calculation | Min Win Rate |
|---|---|---|
| 1:1 | 1 ÷ (1 + 1) = 1 ÷ 2 | _____% |
| 1:2 | 1 ÷ (1 + 2) = 1 ÷ 3 | _____% |
| 1:3 | ___________ | _____% |
| 1:4 | ___________ | _____% |
| 1:5 | ___________ | _____% |
Exercise 3.3: Compare Trading Systems
Which system would you choose and why?
| Metric | System A | System B |
|---|---|---|
| Win Rate | 55% | 40% |
| Average R:R | 1:1.5 | 1:3 |
| Trades/Month | 20 | 8 |
| Risk/Trade | 1% | 1% |
System A Expectancy: _____R per trade
System A Monthly: _____ trades × _____R = _____R
System A Monthly %: _____% (on $10K = $_____)
System B Expectancy: _____R per trade
System B Monthly: _____ trades × _____R = _____R
System B Monthly %: _____% (on $10K = $_____)
Better System: _____ | Why? _____________________
📉 Section 4: Drawdown & Recovery Exercises
Exercise 4.1: Recovery Requirements
Calculate how much gain is needed to recover from each drawdown.
Formula: Recovery % = Loss% ÷ (100% – Loss%)
| Drawdown | Account After | Need to Recover | % Gain Required |
|---|---|---|---|
| 10% | $9,000 | $1,000 | _____% |
| 20% | $8,000 | $2,000 | _____% |
| 30% | $_____ | $_____ | _____% |
| 50% | $_____ | $_____ | _____% |
| 75% | $_____ | $_____ | _____% |
Exercise 4.2: Losing Streak Impact
Calculate account impact of consecutive losses at different risk levels.
Starting Account: $10,000
Note: Each loss is calculated on the current balance (compounding)
| Losses | 1% Risk | 2% Risk | 5% Risk |
|---|---|---|---|
| 5 losses | $_____ | $_____ | $_____ |
| 10 losses | $_____ | $_____ | $_____ |
| 15 losses | $_____ | $_____ | $_____ |
| 20 losses | $_____ | $_____ | $_____ |
Key Insight: What’s the maximum consecutive losses you can handle at each risk level before 25% drawdown?
1% Risk: _____ losses | 2% Risk: _____ losses | 5% Risk: _____ losses
🎮 Section 5: Real Trading Scenarios
Scenario 5.1: Complete Trade Calculation
Calculate all risk parameters for this trade.
You’ve identified the following setup:
- Market: Nasdaq (NQ Futures)
- Account: $25,000
- Risk Rule: 1% per trade
- H4 Bullish OB: 18,380 – 18,420
- Planned Entry: 18,400 (middle of OB)
- Stop Loss: 18,350 (below OB + buffer)
- Target 1: 18,550 (PDH)
- Target 2: 18,700 (Weekly High)
- Contract: E-mini NQ ($20/point)
Calculate:
1. Dollar Risk:
$25,000 × 1% = $_______
2. Point Risk:
18,400 – 18,350 = _______ points
3. Position Size:
$_______ ÷ (_______ × $20) = _______ contracts
4. R:R to Target 1:
(18,550 – 18,400) ÷ (18,400 – 18,350) = _______ ÷ _______ = 1:_______
5. R:R to Target 2:
(18,700 – 18,400) ÷ _______ = 1:_______
6. Dollar Profit at TP1:
_______ points × $20 × _______ contracts = $_______
7. Dollar Profit at TP2:
_______ points × $20 × _______ contracts = $_______
8. Account % Gain at TP2:
$_______ ÷ $25,000 = _______%
📝 Answer Key
The math skills you build here will protect your capital. Work through each problem before checking.
📊 Section 1: Position Sizing Answers
1.1 Trade #1: $100 risk | 30 pips | $3.33/pip needed | 0.33 lots
1.1 Trade #2: $125 risk | 50 pips | $2.50/pip needed | 0.38 lots
1.1 Trade #3: $100 risk | 50 pips | $2/pip needed | 0.27 lots
1.2 Trade #1: $500 risk | 15 pts | $750/contract | 0.67 contracts (round to 0 or 1)
1.2 Trade #2: $150 risk | 50 pts | $100/contract | 1.5 contracts
1.2 Trade #3: $500 risk | 8 pts | $800/contract | 0.625 contracts
1.3 Trade #1: $400 risk | 2.42% to SL | $16,528 position | 0.267 BTC
1.3 Trade #2: $50 risk | 1.56% move | 15.6% with 10x | $320 position | $32 margin
⚖️ Section 2: Risk:Reward Answers
2.1: #1: R=5, Rwd=15, 1:3 | #2: R=2, Rwd=6, 1:3 | #3: R=30pips, Rwd=90pips, 1:3 | #4: R=50, Rwd=150, 1:3 | #5: R=7, Rwd=21, 1:3
2.2: #1: Risk=5, Reward=15, TP=115 | #2: Risk=12, Reward=30, TP=2020 | #3: Risk=2000, Reward=8000, TP=70,000
2.3: TP1=20pts, TP2=40pts | 2×10=20, 2×20=40 | Total=60pts | Risk=20pts | Blended R:R=1:3
📈 Section 3: Expectancy Answers
3.1: A: $120-$40=$80 | B: $140-$65=$75 | C: $56-$45=$11 (barely profitable, risky)
3.2: 1:1=50% | 1:2=33.3% | 1:3=25% | 1:4=20% | 1:5=16.7%
3.3: A: 0.55×1.5-0.45=0.375R×20=7.5R (7.5%) | B: 0.4×3-0.6=0.6R×8=4.8R (4.8%) | A is better due to more trades
📉 Section 4: Drawdown Answers
4.1: 10%→11.1% | 20%→25% | 30%→$7K,$3K,42.9% | 50%→$5K,$5K,100% | 75%→$2.5K,$7.5K,300%
4.2 (approx): 1%: 5L=$9,510, 10L=$9,044, 15L=$8,601, 20L=$8,179 | 2%: 5L=$9,039, 10L=$8,171, 15L=$7,386, 20L=$6,676 | 5%: 5L=$7,738, 10L=$5,987, 15L=$4,633, 20L=$3,585
Max losses before 25% DD: 1%=~29 | 2%=~14 | 5%=~6
🎮 Section 5: Scenario Answers
5.1:
1. $250 risk
2. 50 points
3. $250÷(50×$20)=$250÷$1000=0.25 contracts (round to 0, need bigger account or tighter SL)
4. 150÷50=1:3
5. 300÷50=1:6
6. Would be 150×$20×0.25=$750 (but can’t trade 0.25, so $0 or $750-$3000 with 1 contract)
7. 300×$20×1=$6000 with 1 contract
8. If using 1 contract: $6000÷$25000=24% (but risking $1000=4%)
Note: This shows why proper position sizing matters – with these parameters you either skip the trade or accept higher risk.