Why Position Sizing is the Holy Grail of Trading

The 1% Rule

Most beginner traders focus entirely on where to enter. They spend hours studying indicators, support lines, and moving averages. But ask a professional trader what they focus on, and the answer is usually how much to risk.

Position sizing is the mathematical defense against market randomness.

The Coin Flip Experiment

Imagine a coin flip game.

• Heads: You win 2x your bet.
• Tails: You lose your bet.

If you bet 50% of your account on every flip, a streak of 4 tails (which happens often) leaves you with just 6% of your money. You are bankrupt.

If you bet 1% of your account, a streak of 4 tails leaves you with 96% of your money. You are still in the game.

How to Calculate It

The formula is simple, but doing it in your head is hard during a fast-moving market.

1. Determine Risk Amount: Account Size * Risk % (e.g., $10,000 * 1% = $100).
2. Determine Distance: Entry Price - Stop Loss Price (e.g., 20 pips).
3. Calculate Size: Risk Amount / (Distance * Pip Value).

Or, simply use our Calculator to do it instantly.

Conclusion

Don’t let a single trade wipe out your month. Stick to a rigid position sizing model, and you will survive long enough to become profitable.