Position Sizing
Risk Management
What it means
Deciding how many shares or contracts to trade based on how much you are willing to lose, not on how confident you feel.
Example
With a $10,000 account, 1% risk ($100), a $100 entry, and a $95 stop ($5 risk per share), you buy 20 shares. The size comes from the risk, not from "I think it will win."
Mistake beginners make
Beginners size positions by gut: "buy 1,000 shares because I am sure." Sizing by confidence, not by risk, is how one bad trade wipes out months of gains.
Related terms
- Risk-Reward Ratio — How much you risk on a trade compared to how much you aim to make. A 1:3 ratio means you r…
- 1% Rule — A simple risk rule: never risk more than 1% of your total account on a single trade. It ke…