Core8 min read
Position size is how an idea becomes a number
The same setup is conservative or reckless depending on size, stop distance, and equity.
Risk first, distance second, size last
Choose how much of the account one idea may lose. Measure the distance from entry to the price that proves the idea wrong. Size is the arithmetic that follows. A fixed lot on every trade ignores that a wide stop and a tight stop are different bets. Choosing size from a hoped-for profit reverses the order.
Volatility and familiarity change the fraction
When a market is faster than usual, or newer to you, the same percentage of equity can feel like a different trade. Reducing size is a valid response. Spread, commission, and slippage belong in the distance you measure; a stop that looks 20 points away may be closer after costs.
Correlated tickets add up
Three positions that rise and fall together are one exposure. Add the risk before you call the book diversified. The usual errors are a constant lot size, sizing from desire, and forgetting that costs move the real invalidation.
Takeaways
- Account risk, then stop distance, then position size.
- Cut size when volatility rises or the market is unfamiliar.
- Include costs, and add correlated trades into one risk number.