Position Sizing: How Much Should You Risk Per Trade?
Master the art of position sizing to protect your capital and survive losing streaks.
💡 Key Takeaways
- ✓Never risk more than 1-2% per trade
- ✓Calculate position size based on stop loss
- ✓Consistency beats occasional big wins
- ✓Position sizing is key to long-term survival
Position sizing determines how many shares or contracts to trade based on your account size and risk tolerance. It's crucial for long-term survival.
The 1% rule suggests never risking more than 1% of your total account on a single trade. Some traders use 0.5% or 2% depending on their strategy.
To calculate position size: Position Size = (Account Size × Risk %) / (Entry Price - Stop Loss Price)
Proper position sizing ensures that a string of losses won't devastate your account. Even with a 50% win rate, you can be profitable with good risk management.
Avoid the temptation to increase position size after wins or chase losses with bigger bets. Stick to your rules consistently.
Summary
- 1Never risk more than 1-2% per trade
- 2Calculate position size based on stop loss
- 3Consistency beats occasional big wins
- 4Position sizing is key to long-term survival
Disclaimer: This content is for educational purposes only and should not be considered financial advice. Always do your own research and consult with a qualified professional before making investment decisions.