Position sizing: how much to risk on one trade

The question behind every trade

Before asking where to enter, a trader has to answer a smaller question: how much of the account am I willing to lose if this idea is wrong? Position sizing turns that answer into a number of units, lots or shares.

Two traders can take the same idea and end with very different results, only because one risked a small, fixed share of the account and the other risked whatever felt right on the day.

From risk to size

Start from three numbers: the account size, the share of it you accept to lose on one trade, and the distance between your planned entry and the price at which the idea is proven wrong.

Risk amount = account size × accepted share. Position size = risk amount ÷ distance to the invalidation point (in money per unit). If the distance is wider, the position is smaller, so the money at risk stays the same.

Many educators use a small fixed share, often between half a percent and two percent, as an example. The right figure is personal: it depends on your experience, your strategy and what you can afford to lose.

Why a fixed share helps

A fixed share keeps a losing streak survivable: ten losses in a row at a small share leave most of the account intact, while ten losses at a large share can end it.

It also removes one emotional decision from each trade. The size follows the rule, not the mood.

Record it in your journal

Write the planned risk, the size and the invalidation point before each trade, then compare them with what happened. Over weeks, the journal shows whether you kept your own rule.