The position was already open when I realised something was wrong. I'd entered with a 1:3 risk-to-reward setup — twenty points of risk, sixty points of potential reward. Textbook. Except I'd sized the trade on the reward number, not the risk number. The distinction sounds minor until you're watching the loss column grow three times faster than your model expects.

This wasn't a one-off. Flicking back through six weeks of my journal, I found the same distortion repeated across eleven trades. I'd been calculating the ratio correctly on paper, then unconsciously anchoring my position size to the target distance rather than the stop distance. Confident in the setup, optimistic about the outcome. Classic.

CONCEPTRisk-to-reward ratio measures potential loss against potential gain — position sizing must always be anchored to the risk side, not the reward side.
WARNINGSizing a trade based on your profit target instead of your stop distance will silently inflate your actual risk on every single entry.
KEY IDEAA favourable ratio on paper means nothing if your execution process corrupts it before the order hits the market.

The root cause wasn't greed — that's the lazy answer. The specific failure was a two-step mental process where ratio calculation and position sizing happened in separate moments, with no mechanical link between them. By the time I got to sizing, the attractive reward figure was already front of mind. The risk figure had quietly left the building.

Intended vs Actual Risk Per Trade0%1%2%3%T1T2T3T4T5IntendedActual

The fix was mechanical and boring, which is exactly what good process looks like. Every position size now gets calculated inside a single formula where the stop distance is the first variable entered — not an afterthought. Traders studying this pattern will find the underlying framework explained well on Investopedia's risk-reward ratio page, and the broader statistical logic behind why win rate alone means little is covered thoroughly on Wikipedia's risk management entry. For anyone wanting to understand how expectancy ties the whole picture together, Investopedia's expected value explainer is worth the ten minutes.

The rule that would have prevented all of it: never touch position size until the stop distance is locked, written down, and staring back at you.

This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.