Determining how much capital to allocate per trade based on risk tolerance.
This scope is designed to help you build a practical understanding of Position Sizing. Lessons move from core definitions to real-world context and common failure points.
Reading in order is recommended, but each lesson stands on its own.
Position sizing is the systematic determination of how many units of a security to buy or sell so that each trade’s potential loss remains within a predefined risk limit. It is central to capital preservation, controls drawdowns, and underpins long-term survivability across changing market conditions.
Position size governs risk exposure, drawdowns, and survivability more than the exact entry price. This article explains how sizing controls loss magnitude, stabilizes variance, and protects capital when markets behave unpredictably, with practical examples and common pitfalls.
Percentage risk models size positions by risking a fixed fraction of current equity on each trade. This article defines the approach, explains why it supports capital protection and long-term survivability, and illustrates practical implementation details along with common pitfalls to avoid.
A rigorous explanation of how position sizing interacts with account size to control risk, reduce the probability of ruin, and support long-term survivability. Includes clear definitions, practical calculations, and common pitfalls to avoid without offering investment advice or trade recommendations.
A clear, practical explanation of ATR-based position sizing, how it controls per-trade risk by adapting to market volatility, and the operational details and pitfalls that matter for long-term survivability in trading systems.
Fixed dollar risk sets a predefined cash amount you are willing to lose on any single position, then sizes the trade so that a stop-out approximates that loss. This article explains the concept, why it matters for capital protection and long-term survivability, and how it is applied in practice across different instruments, including common pitfall…
A detailed explanation of scaling in and scaling out as position sizing techniques for managing risk, controlling drawdowns, and improving long-term survivability. The article clarifies definitions, mechanics, practical examples, and common pitfalls without offering trade recommendations.
A rigorous explanation of volatility-based position sizing, why it matters for risk control and survivability, and how it is implemented with practical examples and cautions about common pitfalls and misconceptions. Written in a clear, academic style for serious learners.
Underexposure is the deliberate choice to size positions below an estimated optimal or allowable level. It protects trading capital by reserving risk capacity for model error, correlation spikes, and unexpected losses, thereby improving long-term survivability. This article clarifies the concept, shows where it applies, and highlights common miscon…
A rigorous overview of position sizing across asset classes, showing how to translate risk into position amounts, account for correlation, and protect trading capital for long-term survivability without relying on forecasts or trade tips. Practical examples clarify volatility scaling, fixed fractional risk, and risk contribution across equities, fu…
