Risk First: Position Sizing & Stop Losses
Your strategy picks the trades; your position sizing decides whether you survive. The math is simple and it matters more than your entry.
New traders obsess over entries. Experienced traders obsess over size. You can be right less than half the time and still grow your account — but only if your losers stay small. That's entirely a sizing decision.
The one rule#
Risk a fixed, small percentage of your account on each trade — commonly 1%. Not 1% of the position, 1% of the account. If a trade hits your stop, you lose 1%. That's it.
The formula#
risk_amount = account_balance × risk_percent
position_size = risk_amount ÷ (stop_distance × value_per_unit)
Work an example. $10,000 account, risk 1% ($100), stop 30 pips away, pip value $10/lot:
position_size = 100 ÷ (30 × 10) = 0.33 lots
Try your own numbers in the position-size calculator.
Why percentage risk saves you#
Fixed-percentage sizing means your losses shrink automatically during a drawdown. Lose five in a row and each loss is smaller than the last — the account can't spiral to zero from a losing streak. Fixed-dollar or, worse, "gut feeling" sizing is how accounts blow up.
| Approach | After a 5-loss streak |
|---|---|
| 1% per trade | ~5% down, recoverable |
| 10% per trade | ~40% down, needs +67% to recover |
| "Feel it out" | Unpredictable — usually fatal |
The takeaway#
A great entry with bad sizing loses money. A mediocre entry with disciplined sizing can survive long enough to find its edge. Decide how much you can lose before you decide where to get in.