Position size and the risk/reward concept

The least discussed truth of risk literacy: what is at stake in a trade is determined not by the analysis but by the position size. The same scenario is a contained experiment with a small position and an existential threat with an oversized one. A chart-reading error can be corrected; a sizing error often cannot.

The second concept is the risk/reward ratio: the distance to the scenario's invalidation level is measured as "risk", the distance to its target area as "reward", and the two are compared. This ratio is not a quality score but a consistency mirror, read together with probability. A scenario carrying a large invalidation distance for a small reward must be right very often to make mathematical sense — which collides with the single-event uncertainty of lesson one.

Let us draw this lesson's boundary explicitly: we are not saying which size is "correct" or which ratio is "good" — that depends on personal circumstances and sits outside this course. What we teach is the concepts themselves: no scenario can be judged without knowing what is at stake, and what is at stake cannot be known without measuring the distances. You have learned to measure; what you do with the measurement belongs to you, not to this course.