Position Sizing Formulas

Position sizing answers: How much should I buy or sell? Get this wrong, and even good trades can hurt you.

The Core Formula

Position Size = Account Risk ($) ÷ Trade Risk (distance to SL)

Step by Step:

1. Determine account risk: Account × Risk % = Dollar risk

   • $10,000 × 1% = $100 max risk per trade

2. Measure trade risk: Distance from entry to stop loss

   • Entry: $50.00, Stop: $48.00 = $2.00 risk per unit

3. Calculate size: Dollar risk ÷ Per-unit risk

   • $100 ÷ $2.00 = 50 shares/units

For Crypto & Forex

For perpetuals or forex, the calculation is the same but expressed differently:

Position Size = (Risk $) ÷ (Stop Distance) × Contract Multiplier

Example: $10,000 account, 1% risk ($100), BTC entry at $60,000, stop at $59,400 (1% away):

• Risk per BTC = $600
• Position size = $100 ÷ $600 = 0.167 BTC
• In dollar value: ~$10,000 position (1x leverage)

Adjusting for Volatility

Volatile assets need wider stops → smaller position sizes. This is by design:

• Wide stop, small size → same dollar risk
• Tight stop, larger size → same dollar risk

The dollar risk stays constant. Only the position size changes.

Common Mistakes

1. Sizing based on conviction — "I'm really sure about this one" → larger size → blown account
2. Not accounting for slippage — Use market orders in volatile conditions? Your actual risk may be larger
3. Adding to losers — Averaging down without a plan destroys accounts

Key Takeaway

Calculate your position size before every trade. It should be mechanical, not emotional. Same dollar risk, every single time.