What It Is
Position sizing determines how much capital to allocate to each trade. It's the single most important risk management decision you make — more important than entry timing, indicator selection, or even trade direction.
Key insight: You can have a 70% win rate and still blow your account with bad position sizing. Conversely, a 40% win rate with proper sizing and risk/reward can be consistently profitable. The math of risk management is more powerful than the math of prediction.
The standard approach is the percent risk model: risk a fixed percentage of your account (1-2%) per trade. Your position size is then calculated based on your stop-loss distance. Wider stop = smaller position. Tighter stop = larger position.
Calculating Position Size
Position Size = (Account × Risk%) / Stop Distance. If your $10,000 account risks 2% ($200) and your stop is $50 from entry, your position is 4 units.
Even 2% is aggressive for beginners. Start with 0.5-1% while you build a track record. After 100+ trades with a proven edge, you can consider sizing up.
Three trades in correlated assets (e.g., three altcoins) at 2% each = 6% correlated risk. If they all stop out together, that's a significant drawdown. Count correlated positions as one combined risk.
Apply this concept in combination with others. No single concept tells the whole story - confluence is key.
Continue through core concepts
Compare this reference with related structures and readings before applying it to a live chart.