Position Sizing
The only variable fully under your control — and the difference between a losing streak and a blown account.
The Math of SurvivalAdvanced 7 min read· Lesson 1 of 5 in Risk Management
The 1% rule
Risk a fixed fraction of equity per trade — classically 1%. Size = (equity × 1%) ÷ (entry − stop distance). A $50k account risking 1% with a $2 stop distance buys 250 shares, whatever the share price. Every trade risks the same dollars; no single idea can hurt you.
Why fixed-fractional
Ten straight 1% losses = −9.6% (survivable, and streaks of ten happen to good strategies). Ten straight 10% losses = −65% (needs +186% to recover). Sizing converts identical strategies into thriving or ruined accounts — it is not an afterthought, it IS the risk decision.
Volatility-aware sizing
Stops belong outside noise (2×ATR — see the ATR lesson), and the size follows FROM the stop, never the reverse. Deciding size first and then finding a stop to fit is the process inverted and the account endangered.