Position Sizing: The Math That Actually Keeps You in the Game
Most traders blow up not because they pick bad setups, but because they bet too much on the bad ones. Position sizing is the single highest-leverage skill in trading — and it's almost entirely arithmetic.
The thing nobody tells beginners
You can be right 60% of the time and still go broke. You can be right 35% of the time and get rich. The difference isn't accuracy — it's how much you have on the line when you're wrong.
Position sizing answers one question: given my account, my entry, and where I'd be proven wrong, how many shares (or coins, or contracts) should I buy?
The 1% rule (and why 2% is the realistic ceiling)
The classic rule from Van Tharp, Mark Minervini, and basically every prop firm risk desk: never risk more than 1% of your account on a single trade. Aggressive traders push it to 2%. Past that, the math punishes you fast.
The formula
You only need three numbers: your account size, your risk percent, and the per-share (or per-coin) risk — i.e., the distance from entry to stop.
That's it. The numerator is your dollar risk budget. The denominator is what one share will cost you if the trade fails. Divide them and you get share count.
Worked example: stock
NVDA Swing Trade
Notice the position size is 59 shares — not "a few hundred bucks worth" or "a tenth of my account." The number falls out of the math. If your stop is tighter, you can buy more shares for the same risk. If it's wider, fewer shares.
Worked example: crypto
Crypto math is the same, but with smaller decimals and (often) wider stops because volatility is higher.
SOL Swing Trade
Crypto exchanges let you buy fractional units, so don't round share counts down to whole numbers like you would on a stock.
Volatility-adjusted sizing (intermediate)
Fixed percent stops ignore how volatile the asset actually is today. A better approach uses ATR (Average True Range) to set the stop relative to recent price movement.
Shares = (Account × Risk%) ÷ Stop distance
If BTC's daily ATR is $2,400, a 2× ATR stop is $4,800 wide. On a $20,000 account risking 1% ($200), that's 200 / 4800 ≈ 0.0417 BTC. The stop adapts to current conditions instead of being arbitrary.
What "risk" actually means
Position sizing flow
Edge cases worth knowing
- Gap risk: Stops don't protect you against overnight gaps. If a stock can gap 15% on earnings, your "1% risk" can become 5% real fast. Reduce size around binary events.
- Slippage: In thin crypto markets, your stop fills 2–3% worse than the trigger. Bake that into the math.
- Correlated positions: 5 long crypto positions at 1% each isn't 5% risk — in a crash they all move together. Treat correlated baskets as one position.
- Leverage: Doesn't change the formula. Leverage changes buying power, not how much you should risk. A 5× margin trade still risks 1% of your account if the math is right.
What to do tomorrow
- Pick a fixed risk percent. Start with 1%.
- Before every trade, write down: account, entry, stop, per-share risk, share count.
- If you can't define a stop, you can't define a position size — and you shouldn't take the trade.
- Track 30 trades. Look at your real average loss in dollars. If it's higher than your planned 1%, your stops are slipping or you're sizing too big.