Who this is for — Anyone who enters with good ideas but inconsistent size: too large when impulsive, too small when afraid. Position sizing makes risk repeatable.
Position sizing turns a risk rule into operational quantity: first you decide how much you can lose, then you calculate size. It does not start from conviction; it starts from the limit.
In plain terms — First choose maximum tolerable damage, then choose how many units to buy or sell. If you reverse the order, the market decides for you.
Bronze prerequisite — Before this lesson: stop-loss, trade-size, take-profit, risk-per-trade. See bronze-path.
Practical formula and checks
Base formula: monetary risk per trade / distance between entry and stop = size.
Before sending the order, always verify three points:
- Theoretical loss respects your risk-per-trade.
- Stop is technical, not "psychological" (technical-stop).
- Size does not exceed allocated-capital planned for that market.
When volatility rises, stop distance increases and size must fall. That is correct behaviour, not a problem to work around.
Example — Capital €20,000, risk per trade 0.5% = €100. Entry at 50, stop at 48, distance €2. Maximum size: 50 units. If you widen the stop to €2.5, correct size drops to 40 units.
Typical sizing mistakes
- Increasing size after two winners to "push" the account.
- Keeping fixed size even when volatility changes.
- Calculating risk while ignoring costs and slippage.
- Tightening the stop only to fit a larger size.
Card
- What it is: rule that converts maximum risk into operational quantity.
- Why it matters: protects capital and avoids emotional leverage errors.
- Quick check: risk first, then size, then the order.
Silver path — Module: Position management. Part of silver-path.