Risk management
How to size a trade: position sizing basics
One formula, every market. The variable you actually control.
The formula
Position size equals your risk amount divided by your stop distance. Risk amount is your account times the percent you are willing to lose. Stop distance is the gap between entry and stop. That is the whole thing. Lots, shares and units are just the output in the right format.
Why it matters most
You do not blow up from being wrong on direction. You blow up from being oversized when you are wrong. A 5R loss costs 25% of your account at 5% risk, and 5% at 1% risk. Same mistake, completely different outcome.
The one you control
Entry and exit belong to the market. How much you put on is fully yours. Getting this one variable right is what separates traders who survive long enough to develop an edge from those who do not.
What your smooth brain needs to remember
A mediocre strategy with great risk management survives. A great one with bad risk management blows up.
Size a trade
Get your exact position size and risk before you enter.