Position sizing is the process of deciding how large a trade or investment to take relative to your account. It's arguably the most important skill in trading and investing — more important than entry timing, indicator choice, or strategy sophistication.
A great strategy with poor position sizing goes broke. A mediocre strategy with good position sizing survives to improve.
Losing streaks are inevitable in any trading or investing strategy. The question isn't whether you'll lose — it's whether your account survives long enough for your edge to play out. Position sizing is what determines the answer.
| Risk per trade | 10 consecutive losses |
|---|---|
| 1% per trade | Account down ~9.6% |
| 2% per trade | Account down ~18.3% |
| 5% per trade | Account down ~40.1% |
| 10% per trade | Account down ~65.1% |
A 65% drawdown requires a 186% gain just to break even. Most traders never recover from drawdowns that large — not because their strategy is broken, but because they sized too large.
The most common professional standard: risk no more than 1% of your account on any single trade. This means your stop-loss, if hit, costs you 1% of total capital.
Position Size = (Account × Risk%) ÷ (Entry − Stop Loss)
Example: $10,000 account, 1% risk, entry $100, stop $96 → ($10,000 × 0.01) ÷ $4 = 25 shares
Enter your account size, risk percentage and stop distance to get the exact number of shares or contracts to trade.
Open Position Size Calculator →The Kelly Criterion is a formula for sizing positions based on your edge:
f = W − (1−W) / R
f = fraction to risk | W = win rate | R = reward-to-risk ratio
Example: 55% win rate, 1.5:1 reward-to-risk → f = 0.55 − (0.45/1.5) = 0.25 (25% of account). Full Kelly is aggressive — most professionals use "half Kelly" or less to reduce drawdown while still capturing most of the edge.
Fixed fractional is superior for long-term accounts. The math compounds in your favour during winning periods and protects you automatically during losing streaks.