Why Position Sizing Matters
Position sizing determines:
- How much you lose when wrong
- How much you make when right
- Whether you survive to trade another day
The 1-2% Rule
Never risk more than 1-2% of your account on a single trade.
Example:
- Account: $10,000
- Max risk: $100-200 (1-2%)
- If stop is $2 away, max shares: 50-100
Sizing by Conviction
| Conviction | Position Size |
|---|---|
| 80-100 | Full size (2% risk) |
| 60-79 | Standard (1.5% risk) |
| 40-59 | Reduced (1% risk) |
| < 40 | Skip or paper trade |
The Math
Position Size = (Account × Risk %) ÷ Stop Distance
Example:
- Account: $10,000
- Risk: 1.5%
- Stop: $3 below entry
- Position = ($10,000 × 0.015) ÷ $3 = 50 shares
Key Takeaways
- Position sizing controls risk, not profit
- Higher conviction = larger (but still controlled) size
- Never exceed 2% risk per trade