Position size is calculated with one formula: dollar risk per trade divided by the distance to your stop. First fix the percentage of equity you accept to lose if the stop fires — typically 1–2% — then fit the volume to the distance. Position size, not entry accuracy, decides whether your account survives a losing streak.
What it is — the volume of a specific trade, derived from a pre-fixed risk and the distance to the stop-loss. Not "whatever I can afford to lose", but the output of a three-number formula.
Why it matters — at 1% risk per trade, ten straight losers cost under 10% of equity. At 10% risk, the same streak destroys two thirds of the account. Same strategy, different sizing — opposite fates.
How to use it — size comes last: after the thesis, the stop and the R:R check. See how Moami's AI team evaluates your position risk.
risk per single trade
at 10% risk per trade
from a −50% drawdown
equity, risk, distance
What's inside
- What position sizing is
- The formula: three numbers and one division
- The calculation in 4 steps, with numbers
- Streak math: why 1% and 10% are different universes
- How much to risk: 0.5%, 1% or 2%
- The Kelly criterion
- Where leverage fits in
- Fixed percent vs fixed dollar amount
- Common mistakes
- Checklist: the size is right
- Frequently asked questions
What position sizing is
Position size is the last variable of a trade, not the first. Most people arrive at the market with the opposite habit: first "I'll put in $5,000", then the entry, and somewhere at the end — a thought about the stop. The professional sequence is mirrored: thesis → invalidation level → stop distance → and only now the volume at which a stop-out costs a pre-agreed percentage of equity.
In this logic, position size is a function of risk, not of conviction. "I'm really confident in this one" is not an argument to double the size: confidence changes neither the probabilities nor the market structure. Only the math changes the outcome — risk per trade, distance, and the risk-to-reward ratio.
Sizing has a flip side too: a position can be too small. If risk per trade is hundredths of a percent, fees and slippage eat a meaningful share of the edge, and the system stops paying for its own execution. The size must be small enough to survive losing streaks — and large enough for the positive expectancy to show up on the account, not just in a spreadsheet.
The formula: three numbers and one division
All the "magic" of position sizing fits in one line:
position size = (equity × risk per trade) / distance to stop
Equity is your current trading capital. Risk per trade is the percentage you accept to lose when the stop fires; the industry standard is 1–2%, up to 3% for aggressive systems. Distance to stop is the gap between entry and the invalidation level, in percent of price or in dollars. The numerator is the money actually at stake. The denominator is the cost of being wrong per unit of volume.
The formula yields a counterintuitive conclusion: the wider the stop, the smaller the position. A wide structural stop is not a license to "risk a bit more" — it is an automatic command to cut volume. And vice versa: a tight stop allows large volume at the same dollar risk — which is why scalpers love dense levels.
The distance in the formula is the distance to a real stop placed on the exchange. If there is no stop, the denominator becomes the distance to the liquidation price — and the formula honestly shows that without a stop, the entire margin of the position is the stake.
The calculation in 4 steps, with numbers
- Fix the risk per trade
Equity $10,000, risk 2%. Maximum loss if the stop fires: $200. This number is not up for debate after entry.
- Determine the stop distance
Long BTC at $78,000, structural stop beyond the swing low at $77,000. Distance: $1,000, roughly 1.3% of price.
- Divide risk by distance
$200 / $1,000 = 0.2 BTC. That is the position size — $15,600 notional on $10,000 equity.
- Pick leverage to fit the notional
The notional is 1.56× the equity — 2× leverage covers it with margin to spare. Leverage here is a consequence of the calculation, not the starting wish.
Tip. Run the numbers before opening the terminal — on paper or in a note. A calculator used while your finger hovers over the Buy button systematically loses to adrenaline.
Streak math: why 1% and 10% are different universes
Every strategy — even one with good statistics — produces losing streaks. Five to seven in a row is not a catastrophe; over hundreds of trades it's the norm. The only question is what such a streak costs your account, and here percentages compound non-linearly.
| Risk per trade | 10 straight losers | Needed to recover |
|---|---|---|
| 1% | −9.6% of equity | +10.6% |
| 2% | −18.3% of equity | +22.4% |
| 5% | −40.1% of equity | +67% |
| 10% | −65.1% of equity | +186% |
→ Scroll the table to the right
The asymmetry between drawdown and recovery is the core argument for conservative sizing. Losing 50% and getting back to even is not "two times 50%" — it's −50% followed by +100%. An account dosed at 1–2% per trade survives a losing streak at −10…−18% and keeps trading. An account risking 10% per trade must nearly triple after the same streak just to break even.
The same table explains why experienced traders judge systems by maximum drawdown, not by returns. Returns are a function of a lucky stretch; drawdown is a function of sizing. Of two systems with equal expectancy, the one that survives is the one whose position size keeps the worst streak bearable — both psychologically and mathematically.
How much to risk: 0.5%, 1% or 2%
There is no universal percentage — there is a frame within which you pick your number. Pushing below 1%: a short trading history (you don't know your own statistics yet), high correlation across open positions, a news-driven market, a recent losing streak. Pushing up toward 2–3%: a long, documented track record with positive expectancy, low portfolio exposure, systems with short holding times.
A practical starting anchor is 0.5–1%. This is not over-caution: at small risk, an execution mistake, slippage or unaccounted correlation cost pennies, while the statistics you collect are exactly the same. Raising the risk makes sense after dozens of documented trades, once the system's behaviour in drawdown is known from facts rather than feelings.
A word on "turbo mode": risking 5–10% per trade "while the account is small" is the most expensive way to learn. A small account at a disciplined 1% grows slowly — but it grows. An account risking 10% almost guarantees the "pump — wipeout" cycle and takes with it not just the money, but the statistics you could have learned from.
The Kelly criterion: why nobody uses it literally
In theory, the optimal fraction of capital per trade comes from the Kelly criterion: f = W − (1 − W) / R, where W is the win rate and R is the average win-to-loss ratio. A system with a 50% win rate and R = 2 yields 25% of capital per trade by Kelly — and that number exposes the problem immediately.
The formula assumes the win rate and R are known precisely. In a real market both are estimates from a limited sample, and estimation error shifts the "optimum" into unacceptable-drawdown territory: full Kelly happily tolerates a 50–70% loss of capital on the way to its theoretical growth maximum. So practitioners use at most "fractional Kelly" — a quarter or half of the computed value — and most simply stay inside the fixed 1–2% frame: predictable drawdown over the long run beats theoretical optimality.
Where leverage fits in
A common confusion: "position size = leverage". No. Leverage determines how much margin is locked against the notional and where the liquidation price sits — but risk per trade is set by volume and stop distance. A 0.2 BTC position carries the same dollar risk at 2× and at 10×; the difference is how much free margin remains and how far liquidation sits.
The rule of subordination: size is calculated from risk, leverage is fitted to the size — with the condition that the liquidation price stays well beyond the stop. If your chosen leverage pulls liquidation close to the stop, the leverage goes down. The liquidation map shows vividly what happens to those who solve this problem in reverse order.
The practical consequence: in a disciplined system, "what leverage should I take" is never the first question. The formula yields the volume, the volume is compared to the equity — and that ratio suggests the minimum sufficient leverage. Anything above it only narrows your margin buffer without adding a cent of potential profit.
Important. Risk per trade is not the only cap. The combined risk of all open positions — portfolio exposure — needs a ceiling too: three positions at 2% each is already 6% of equity under simultaneous fire if the whole market drops.
Check your position size in thirty seconds
Paste an open or planned position. Moami's AI team cross-checks the volume against your equity, stop distance and liquidation distance, calculates the real risk, and tells you where the sizing diverges from discipline.
Fixed percent vs fixed dollar amount
- Automatically shrinks risk in drawdown: smaller equity — smaller bet
- Scales with account growth without rewriting the rules
- Mathematically rules out a wipeout from a streak of stops
- One parameter across all markets and timeframes
- In drawdown the risk share grows: the same $200 from a thinner account is no longer 2%
- Can't tell a tight-stop trade from a wide-stop trade
- Invites "win it back with the same bet" after a loss
- Needs manual revision every time capital changes
Common mistakes
Increasing size after a loss. Martingale turns a manageable streak of stops into a race against an exponent — and the account always loses that race first.
Counting risk from notional instead of the stop. "A $5,000 position means I'm risking five grand" — wrong with a stop in place, and dangerous without one. Risk is stop distance times volume.
Averaging down without re-running the numbers. Every add-on is a new trade with its own stop and its own risk. Averaging "to get back to even" means growing volume at the exact moment the thesis is already broken.
Ignoring correlation. Long BTC, long ETH and long SOL are not three independent 2% risks — they are nearly one 6% risk: alts fall together with bitcoin.
Editorial note. Moami AI explains risk mechanics and supports discipline — it does not manage your capital and does not give personal recommendations. The percentages in this article illustrate the math; they are not advice. This is educational material, not financial advice.
Checklist: the size is right
- Risk per trade was fixed as a percentage of equity before looking for an entry
- Stop distance comes from a structural level, not reverse-engineered from the desired volume
- Volume is the result of dividing risk by distance — not a round "eyeballed" number
- Leverage is fitted to the notional so liquidation sits well beyond the stop
- Total open-position risk, correlation included, stays under your portfolio ceiling
- After a loss, the next trade is sized from the new equity — no doubling down
Sizing is the boring part of trading, and that is exactly its power: a three-number formula doesn't get tired, doesn't chase highs and doesn't take revenge on the market. You may or may not call the direction. Position size is the one thing guaranteed to stay under your control either way.