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Core concepts

Six core trading concepts, in plain words

Position sizing, drawdown maths, reward-to-risk, expectancy, candlesticks and order types: each with its formula and a worked example. The same six appear as short animated explainers on the home page.

Concept 1 of 6

Plan the size before the trade

Account size × risk % gives the planned risk amount. Dividing it by the stop distance gives the quantity.

Quantity = (Account × Risk %) ÷ Stop distance

In words: Account size times risk percent gives the planned risk amount. In the example, 5,00,000 rupees at 1% is 5,000 rupees; divided by a 10 rupee stop distance that is 500 shares.

All six at a glance

  • 01

    Plan the size before the trade

    Quantity = (Account × Risk %) ÷ Stop distance

  • 02

    A 50% drop needs a 100% rise

    Rise needed = 1 ÷ (1 − drop) − 1

  • 03

    Reward-to-risk, in one picture

    Break-even rate = 1 ÷ (1 + reward-to-risk)

  • 04

    Expectancy: test a plan on paper

    Expectancy = hit rate × reward − miss rate × risk

  • 05

    Read a candle in four prices

    Open · High · Low · Close

  • 06

    Three order types, three behaviours

    Market · Limit · Stop

Try the position-size calculator Watch the animated explainers

Education only. The numbers are simple examples to show how the arithmetic works, not trade ideas, advice or a promise of any result. Trading carries a high risk of loss.