Position Sizing: The Math That Keeps You in the Game
Risk management · 4 min read · October 2026
Entries get all the attention. Position sizing decides who survives. A trader with a mediocre strategy and disciplined sizing will outlast a brilliant strategist who bets a quarter of the account on every idea. The math is simple, and it takes thirty seconds.
The 1% rule
Risk no more than 1–2% of your account on a single trade. On a $10,000 account, 1% is $100. That means ten consecutive losses cost you less than 10% of your capital — painful, but recoverable. Risk 10% per trade and three bad trades cut your account nearly in third, requiring a 43% gain just to break even.
The formula
Position size = (Account × Risk%) ÷ (Entry − Stop)
Example: $10,000 account, 1% risk ($100). You buy a stock at $100 with a stop at $95 — $5 of risk per share. $100 ÷ $5 = 20 shares. Your stop defines your size, not your conviction.
Three mistakes to avoid
- Fixed lot sizes. Trading the same size regardless of stop distance means your actual risk swings wildly between trades.
- Widening the stop. Moving a stop further away after the trade goes against you turns a defined $100 risk into an undefined one.
- Averaging down. Adding to a loser increases size exactly when your thesis is being proven wrong.
Position sizing is boring. That is the point — it keeps you in the game long enough for skill to matter.