Position Sizing: The Boring Skill That Keeps Traders Alive
Published · 2 min read
Most traders do not blow up from a bad strategy — they blow up from bad size. A plain-English position sizing guide with real maths and worked examples.
Nobody posts screenshots of correctly sized trades. There is no drama in risking 1% instead of 20%. That is exactly why the traders who last are bored most of the time.
The maths that ends accounts
Start with $10,000. Risk 10% per trade. Lose five in a row — a bad month, not a career-ending one.
- After 1 loss: $9,000
- After 2: $8,100
- After 3: $7,290
- After 4: $6,561
- After 5: $5,905
You now need a 69% gain to get back to even. That is the moment most people double their size to "make it back" — and the account is gone.
The same five losses at 1% risk leave you at $9,510. You need 5.2% to recover. Same strategy, same losing streak, completely different outcome.
The three numbers you need before any trade
- Account size — the capital you are willing to risk in the strategy.
- Risk per trade — what you lose if the stop is hit. I use 1%; beginners should use 0.5%.
- Stop distance — how far price must move against you before the thesis is wrong.
Then: position size = (account × risk percent) ÷ stop distance.
Worked example
A $25,000 account at 1% risk means $250 of risk allowed. You want to buy at $48.00 with a stop at $45.00, so the stop distance is $3.00.
$250 ÷ $3.00 = 83 shares. Not 500 because the chart looks strong. Eighty-three.
Conviction, catalysts, and chart patterns live inside the stop distance. Size is arithmetic.
R-multiples: the only scoreboard that matters
Stop thinking in dollars. Stop thinking in win rate. Think in R — one unit of risk.
A trade that makes $750 while risking $250 is +3R. A trade that loses $250 is −1R. Now a 40% win rate at +3R beats a 70% win rate at +1R, and you can finally tell whether the strategy works instead of guessing.
Log every trade as a multiple of R. After 50 trades you will know your expectancy, and your size will already be right.
Size first, then pick the trade: position size calculator.
Use these tools to get started
- Position Size Calculator — Risk a fixed slice of your account per trade. Enter your entry and stop, get your exact share count. (Free)
- Options Profit Calculator — Breakeven, max profit, max loss — and a live payoff diagram for calls, puts, and covered calls. (Free)
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- Options Payoff Diagrams, Explained Like a Friend Would —
Payoff diagrams look like rocket science. They are not. A plain-English walkthrough of calls, puts, covered calls, and spreads — with numbers at every step.
- How I Built a Consistent Options Income Strategy That Pays Every Single Month —
Two years of testing options strategies and most of them lost money. The covered call setup that finally worked — with the exact strikes, expirations, and position sizing I use today.