Fixed-Fractional Position Sizing (1% Rule) & Van Tharp R-Multiples

Standardizing every trade's risk as 1R (`AccountEquity × RiskPct`) and computing position quantity from stop distance. Within the Risk & Capital curriculum (Position Sizing & Drawdown → Fractional Risk & Kelly), this topic establishes the concrete quantitative rules and execution mechanics required for live market deployment.

Professional desks never rely on ambiguous visual guesses for position sizing. Instead, every entry, invalidation level, and risk parameter is defined mathematically before a single order reaches the exchange gateway.

Hover over key terms below for instant definitions: Position Sizing, 1% Rule, and R-Multiple. For the complete mathematical derivation and edge-case analysis, open worked example & quantitative lookup matrix for fixed fractional r multiples.

• Position Sizing — Core structural driver governing fixed-fractional position sizing (1% rule) & van tharp r-multiples.
• 1% Rule — Prevents premature entries and enforces mechanical discipline across Fractional Risk & Kelly.
• R-Multiple — Ensures worst-case scenario losses stay strictly within predetermined R-multiple budgets.

1. 1
   1. Pre-Session Calibration & Regime Check

   Measure baseline volatility and liquidity parameters for position sizing prior to market open.
2. 2
   2. Mechanical Signal Confirmation

   Wait for a completed bar close confirming the 1% rule threshold—never pre-empt mid-candle.
3. 3
   3. Risk-Normalized Sizing & Order Placement

   Compute exact lot quantity from the invalidation distance and dispatch via a Marketable Limit order.
4. 4
   4. Post-Trade Telemetry & Audit

   Log arrival price, fill slippage, and MAE/MFE metrics against the Fractional Risk & Kelly benchmark.

Implementation & Quantitative Model

1export function calcPositionQty(equity: number, riskPct: number, entry: number, stop: number) {2  const riskRupees = equity * (riskPct / 100);3  const stopDist = Math.abs(entry - stop);4  return stopDist > 0 ? Math.floor(riskRupees / stopDist) : 0;5}

Cross-reference standard risk definitions such as drawdown, slippage, and Sharpe ratio when auditing your logs.