Position Sizing: How Much to Risk on a Single Trade
Position sizing answers the question "how large a position to open," based on how much you are willing to lose if the trade goes wrong. The basic and most robust approach is to risk a small fixed share of your capital per trade — for example 1%.
How Position Size Is Calculated
Position size is derived from the distance to the stop-loss, not eyeballed. The further the stop, the smaller the position for the same money risk, and vice versa. This calculation keeps the risk per trade constant regardless of the instrument's volatility or the width of the stop.
| Stop-loss | Position size |
|---|---|
| Tight stop | Larger position |
| Medium stop | Moderate position |
| Wide stop | Smaller position |
Why Specifically a Fixed Percentage
The point of the rule is protection against a losing streak, which over the long run is inevitable for any strategy. At 1% risk, even ten losing trades in a row shrink the deposit by roughly 10% rather than zeroing it out. That leaves both your capital and your mindset able to keep trading the system.
- Risk per trade stays constant
- Position adjusts to the stop
- A losing streak does not zero the account
- Risk jumps from trade to trade
- A wide stop = a hidden large loss
- A single streak can ruin the deposit
In brief
- Set your risk per trade in advance — for example 1% of capital.
- Calculate size from the distance to the stop, not at random.
- A fixed percentage survives the inevitable losing streak.
- Sizing affects account survival more than entry accuracy does.