Position Size Calculator

Size follows from risk, not conviction

The calculation runs backwards from what you are willing to lose. Decide the percentage of the account at risk, convert it to a currency amount, divide by the per-share distance to your stop, and that is the number of shares. A 50,000 account risking 1 percent is 500 at risk; with a stop 2 below entry, the position is 250 shares. Conviction changes which trades you take, never how much you risk on one.

Why one to two percent

The arithmetic of drawdown is unforgiving. Ten consecutive losses at 1 percent leaves the account down about 10 percent, recoverable. Ten at 10 percent leaves it down 65 percent, requiring a 186 percent gain to return to break-even. Since losing streaks are certain over enough trades, position size is what decides whether a streak is an inconvenience or the end of the account.

The stop must be placed on the chart, not the wallet

The stop belongs where the trade idea is proven wrong — below structure, beyond a level, outside normal volatility. Placing it at whatever distance makes the desired position size work inverts the process and guarantees being stopped out by noise. If the correct stop makes the position uncomfortably small, the position should be small.

Correlated positions are one position

Five technology holdings each risking 1 percent is not five separate 1 percent risks; in a sector-wide fall they move together and behave as a single 5 percent risk. Portfolio-level exposure to a common factor is what actually damages accounts, and it is invisible when each trade is sized in isolation.

Leverage multiplies the loss, not the risk budget

Margin and derivatives change how much capital a position requires, not how much you should be willing to lose. Sizing to the margin available rather than to the risk amount is the most common route to a catastrophic single loss, because the position that fits the account is far larger than the position the account can survive.

Gaps defeat stops

A stop is an instruction to exit, not a guarantee of price. Overnight gaps, earnings announcements and thin markets can fill well beyond the level, so actual loss exceeds the planned one. Sizing slightly below the maximum tolerable risk leaves room for that, and holding through scheduled events with a full-size position is a decision to accept it.

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