Position sizing
Position size is the amount of your portfolio committed to a single idea. It matters more than entry price, because it decides how much a wrong answer costs you.
A common framework is fixed fractional risk: decide the maximum share of your portfolio you are willing to lose on one idea — often 1% to 2% — then work backwards from your exit level to a position size.
Risk per trade = portfolio value multiplied by your chosen percentage.
Position size = risk per trade divided by the distance from entry to your exit level.
A wider stop demands a smaller position. That relationship is the whole discipline. Size first, then enter — never the other way round.
1. If your stop is further away from entry, your position size should be:
2. Fixed fractional risk means risking:
3. Position size should be decided:
Put this into practice with paper money in the sandbox.
Open my sandbox