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What is position sizing?

Position sizing is deciding how much to buy or sell so that a losing trade costs a fixed, small fraction of your account — professionally, about 1%. It is the discipline that separates identical strategies into surviving accounts and blown ones.

The formula

Size = (account × risk%) ÷ distance to stop. A $5,000 account risking 1% ($50) on a trade with a 5% stop distance buys $1,000 of the asset — regardless of conviction, excitement, or how "sure" the setup feels. The calculator does it in three inputs.

Why 1% is the professional consensus

Losses cluster. At 1% risk, a 10-loss streak — which every strategy eventually produces — digs a hole of barely 10%, needing +11% to recover. At 10% risk the same streak leaves you needing +186% (the recovery asymmetry), and risk of ruin turns from near-zero to near-certain. Larry Hite said it in 1989 and it hasn't aged a day: never risk more than 1% of equity on any trade.

The idea most beginners have backwards

Sizing is not about maximizing the winner — it's about making every loser boring. When losers are boring, you can follow your system through the streak that would otherwise break you; when losers are terrifying, no analysis survives contact with them. Sizing is where leverage, stops and psychology meet — which is why it's Stage 4 of the curriculum, before strategy.

FAQ

Does 1% mean 1% of my account per position? No — 1% is the planned loss if the stop hits. The position itself is usually much larger than 1% of the account.

Can I risk more when I'm confident? Your confidence has no verified track record; your journal does. Some professionals scale between 0.5–2% based on measured edge — never on feeling.

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