Position sizing

Position sizing is the discipline of deciding how large a trade to place. The most common risk-based formula: qty = (equity x risk%) / |entry - stop|. You define how much of your account you are willing to lose on the trade (e.g., 1%), place a stop-loss at your invalidation point, and the formula back-calculates the correct size.

Example. Account equity: $50,000. Risk per trade: 1% ($500). Entry: $100, stop: $95. Distance = $5. qty = $500 / $5 = 100 units. This keeps the dollar loss fixed regardless of how tight or wide the setup is.

Sizing by conviction ("this trade feels great, I'll go big") is one of the most common causes of blowups. A single oversized loss can take weeks of winning trades to recover. Risk-based sizing enforces consistency and lets a statistical edge play out over many trades.

For strategies with a well-defined edge, the Kelly criterion offers a mathematically optimal sizing fraction, though most practitioners use a fraction of Kelly to reduce variance.

Use the Position size calculator to compute your exact quantity before entering a trade. Research output only — this is not investment advice.