Entry, stop and target: R:R and position size

⚠️ Risk warning: CFDs and leveraged forex are complex instruments with a high risk of losing money rapidly. Most retail accounts lose money. This content is education only, not investment advice or a recommendation.

Analysis tells you where a trade might make sense. The trade plan turns that into three prices and one size: where you enter, where you are wrong, where you take profit, and how much to trade so that being wrong costs a known amount.

The stop comes first

Put the stop where the chart says the idea is wrong, for example just beyond the higher low that the long trade depends on, with a little room for the spread and normal noise. Do not place it at a round number of pips because it "feels right", and do not move it further away once the trade is open.

The target and risk:reward

Set the target at a level: a previous swing high, a resistance zone or an extension. Then compare. Risk is the distance from entry to stop; reward is the distance from entry to target. Reward divided by risk is the risk:reward (R:R). If the nearest sensible target gives less than the reward you require, skip the trade or wait for a better entry. Do not move the target to make the numbers look better.

Position size

Decide the most you are willing to lose on one trade, often a small fixed percentage of the account. Then: position size = money at risk ÷ (stop distance × value per unit of price). The wider the stop, the smaller the position. The position sizing lesson covers the basics, and the Invvex calculator does the arithmetic.

Worked example: gold (XAU/USD), H4. The figure uses drawn prices. Price makes a higher low at 3,921 and the long trigger fills at 3,935. The stop goes at 3,917, just under the higher low, so the risk is 18 per ounce. The target is the previous high near 3,980, a reward of 45. Reward divided by risk is 45 ÷ 18 = 2.5, so the R:R is 1:2.5. Sizing: on a 10,000 USD account, risking 1% means 100 USD. With a contract of 100 ounces per lot (check your broker’s specification), one lot gains or loses 100 USD for every 1 USD move, so 18 is 1,800 USD per lot. 100 ÷ 1,800 ≈ 0.055 lots; round down to 0.05 lots, which risks about 90 USD.

Common mistakes

Choosing the lot size first and then fitting the stop to it.
Stops inside normal noise, a few pips from entry, that get hit by ordinary movement.
Ignoring the spread and swap, which are part of the real risk.

This lesson is educational. A good R:R or a correct position size limits the damage of a loss; it does not make a trade more likely to win.

🛠️ Practice task

Use a real chart. This is for practice, not for placing a trade.

Open gold H4 or EUR/USD H1 and find a recent setup from your own rules.
Mark the entry, then the stop where the idea is wrong, then the target at the nearest sensible level.
Write the risk and the reward in price, and the R:R. Would you take it under your rules?
Choose a test account size and a risk per trade, and work out the position size by hand.
Check your number with the Invvex calculator and your broker’s contract specification.

🎯 Mark this chart

Study the drawing, pick the letter, then check. This exercise does not count toward your progress; the quiz below does.

EUR/USD H1: choose the stop Illustrative chart: drawn data, not real prices.