Position Sizing You Can Live With

Translate conviction into controlled exposure.

Research and education only. Not investment advice. Trading involves risk, including loss of principal.

Why size governs outcomes

Entries get attention; position size shapes the distribution of results. Oversizing turns normal variance into large drawdowns. Under‑sizing starves valid ideas. The aim is to keep losses small and consistent so edge can compound.

Set a risk unit (R)

Define a fixed dollar amount you’re willing to lose on one trade. That is your R.

Intraday reference: 0.25%–0.50% of account per trade
Swing/position reference: 0.50%–1.00% per trade

Start small. Step up only after a clean review period with disciplined execution. If performance deteriorates or you hit limits, step down until execution stabilizes.

Portfolio guardrails

Daily loss limit: stop for the day at –2R or –3R (pick one and honor it)
Weekly loss limit: stop at –5R to –7R
Open‑risk cap: total concurrent risk across positions ≤ 5R–8R
Per‑name cap: correlated positions in the same ticker/theme ≤ 2R–3R combined
Event risk: into earnings/major macro, cut size or require defined risk; flat is acceptable

Guardrails protect capital and decision quality.

Position‑size tiers

Size by rule, not mood.

Probe (0.5R): acceptable conditions, not ideal
Standard (1.0R): your written setup is present
Max (1.5–2.0R): rare, pre‑defined A+ conditions only

Document what qualifies for each tier before you trade.

Scaling rules

Never add to losers.
Add only to winners, and only when you can keep total open dollars at risk ≤ initial R. Move the stop so combined open risk never exceeds the original amount.
If the thesis weakens or time runs out, exit to flat. Don’t renegotiate mid‑trade.

How to convert R into size

Risk per share = |entry − stop|
Position size (shares) = R ÷ risk per share

Futures

Risk per contract = ticks to stop × tick value
Contracts = R ÷ risk per contract

Options (debit buys only)

Max loss = premium (debit)
Contracts = R ÷ premium per contract
Choose deltas that match your timeframe; treat the full debit as risk.
(If you’re new to options, master simple defined‑risk buys before anything more complex.)

Match instrument to time horizon

Ideas have a time horizon; instruments behave differently over that horizon.

Options: affected by time‑decay and implied‑volatility changes; direction can be right while premium still decays
Futures: marked‑to‑market with tick values; rollover to manage
Shares: linear exposure, no time‑decay

State the intended holding period, choose the instrument that fits it, and include a time exit so slow drift can’t quietly erode the trade.

Adjusting size through profits and losses

In Loss: Reduce Size

After hitting a daily/weekly limit or taking a material drawdown, cut R by 25–50%, reduce concurrent positions, and trade a smaller menu of setups until you log a block of clean, rule‑following executions.

In Profit: Earn the Right to Increase

Increase R only after a new equity high and a documented stretch with few rule violations. Sizing is earned, not assumed.

Pre‑trade checks

Is R set and sized with the correct formula for this instrument?
Are both exits written (price and time)?
Does the instrument fit the idea’s horizon?
Are daily/weekly limits and the open‑risk cap still available?
If scaling is planned, will total open risk remain ≤ initial R?

Closing

Sizing is the control system on your process. Fix R, enforce guardrails, use plain formulas, and keep exposure inside limits. That’s how conviction becomes dollars—without putting the account at risk.

Position Sizing You Can Live With