Complete Guide to Position Sizing: Never Blow Up Your Account

Position sizing is the most important skill in trading. It's the difference between traders who survive long-term and those who blow up their accounts. In this guide, you'll learn exactly how professional traders size their positions to protect their capital.

What is Position Sizing?

Position sizing is determining how many units to trade based on your account balance and risk tolerance. The goal is simple: never risk more than you can afford to lose on a single trade.

The 1-2% Rule

Professional traders typically risk only 1-2% of their account per trade. This means:

• With a $10,000 account, you risk $100-$200 per trade
• You'd need 50-100 consecutive losses to blow up your account
• This gives you room to recover from losing streaks

How to Calculate Position Size

The formula is straightforward:

Example Calculation

Let's say you have:

• Account balance: $10,000
• Risk per trade: 2% ($200)
• Entry price: $50,000
• Stop loss: $49,000 ($1,000 difference)

Position size = $200 / $1,000 = 0.2 units

This means you can safely trade 0.2 BTC, risking exactly $200 (2% of your account).

Why Position Sizing Matters

Proper position sizing ensures:

• You survive losing streaks
• Your account grows steadily over time
• You avoid emotional trading decisions
• You can trade consistently without fear