Position sizing
Position sizing is deciding how many shares, contracts or coins to buy so that a loss at your stop costs a chosen amount.
How Position sizing is calculated
Size = (account x risk per trade) / (entry price - stop price). With 10,000 dollars, 1 percent risk, entry 50 and stop 48, the dollar risk is 100 and the risk per share is 2, so the size is 50 shares. Check that the position cost does not exceed your cash or leverage limit.
How it is read
Fixed-fraction sizing keeps the same share of the account at risk on every trade, so losses shrink as the account shrinks. Fixed-dollar sizing risks the same amount regardless of balance.
Common mistakes
- Sizing from the amount you want to make, not the amount you can lose.
- Placing the stop after choosing the size, so the stop is wherever the size fits.
- Ignoring gaps, which can take price past the stop and make the real loss larger than planned.
Test it yourself
The Lab sizes each trade as a percent of cash. Change the percent and compare the drawdown on the receipt. The Lab charges trading costs on every trade, fills on the next day's open, and shows how many attempts you have made.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Lessons that cover it
- Stop losses and take profits
- Pips, lots and sizing a forex trade
- Sizing a trade by how much you can lose
- Average result per trade, and Kelly sizing
- Fixed-fraction sizing, fixed-dollar sizing and the risk of ruin
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.