Skip to content
GetProfitable
Search
Dictionary

Initial risk

The planned loss on a trade at the moment of entry, which defines the R unit used to measure everything afterwards.

Initial risk is entry price minus stop price, times size. It is set once, before the trade begins, and it is the denominator for that trade's r-multiple forever, even if the stop later moves.

Recording it correctly is the single most important data hygiene rule in a trading-journal. If you re-baseline R when you move a stop, your statistics become incomparable and flattering: every trade where you tightened a stop will show an inflated multiple.

Example: long 200 shares at $30.00 with a stop at $28.50 means initial risk of $300. Exiting at $33.75 is a $750 gain, or +2.5R. If you had trailed the stop to $32 first, it is still +2.5R, not +1.2R against the trailed risk.

Related: open-trade-risk, r-multiple, risk-normalisation

Educational only, not advice. Spotted an error? Post in Site Feedback.