StrategyIntermediate#Risk Management#Core Concept
Position Sizing
P
Definition
The method of determining how much capital to allocate to a single trade based on account size, risk tolerance, and stop-loss distance.
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Concept Diagram
Key Takeaways
1
The 1-2% rule: risk no more than 1-2% of your account per trade.
2
Formula: Position Size = (Account x Risk%) / (Entry - Stop-Loss).
3
Kelly Criterion optimizes sizing mathematically but is often too aggressive — use half-Kelly.
4
Avoid revenge sizing (bigger after losses), FOMO sizing (all-in), and ignoring correlation.
Practical Example
$50,000 account, 1% risk ($500 max loss). BTC at $100,000, stop at $98,000 ($2,000 risk/BTC). Position = $500 / $2,000 = 0.25 BTC ($25,000). Even if stopped out, only 1% lost.
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