Position Sizing: The Math That Keeps You in the Game
Winning traders don't get rich from one trade. They survive long enough to let their edge play out. Position sizing is how they do it.
The 1% Rule
Never risk more than 1-2% of your total trading capital on a single trade. With proper position sizing, you can sustain 20 consecutive losses and still have 80% of your capital to work with.
The Formula
Position size = Account Risk Γ· Trade Risk
Where Account Risk = Balance Γ Risk % and Trade Risk = Entry β Stop Loss price.
Risk is the only input you can fully control. Position sizing is how you control it.
Why Most Traders Fail Here
After a winning streak, traders increase size out of confidence. After a losing streak, they double down to recover. Both behaviors destroy accounts. Your position size should be mechanical β calculated, not felt.
The Psychological Benefit
When you know your maximum loss before entering, fear disappears. You trade your plan instead of your emotions. This is the hidden dividend of disciplined position sizing.