What is position sizing?

Position sizing is the practice of deciding exactly how much of your trading capital to put into a single trade. It's the core of risk management: instead of asking "how much can I make?", it asks "how much am I willing to lose if this trade goes wrong?"

The idea is that no matter how good your strategy is, some trades will lose. Position sizing ensures a losing trade — or a run of them — can't wipe you out. It's the difference between "survive to trade another day" and "blow up the account."

Common approaches:

• Fixed fractional — risk a fixed % of your account per trade (e.g. 1–2%). If your account grows, positions get bigger; if it shrinks, they get smaller.
• Fixed amount — risk the same dollar amount every trade regardless of account size.
• Volatility-based — size positions inversely to volatility (e.g. using ATR or staking less on meme coins with huge swings). High volatility = smaller size, so each unit of risk is roughly equal.
• Kelly criterion — an aggressive formula that sizes based on your estimated win rate and payoff ratio; optimal in theory but generally too aggressive for live trading, so most people use a fraction of it.

The key relationship that makes it all work is the stop-loss:

Position size = (Account × Risk %) ÷ (Entry price − Stop-loss price)

Example: $10,000 account, risking 2% ($200), entering at $100 with a stop at $90 (a $10 loss per unit) → $200 ÷ $10 = 20 units, or $2,000 worth. Your dollar loss is capped at $200 whether the stop is tight or wide — sizing is what adjusts for that.

A few points specific to crypto: position sizing matters even more here because volatility and drawdowns are extreme, and "winning" isn't the hard part — surviving a bad streak is. Also note that sizing is separate from portfolio allocation — sizing controls risk per trade, allocation controls how much of your portfolio lives in crypto vs. cash vs. other assets overall.

If you'd like, I can pull up current volatility and price data for a specific coin so you can see how a stop-based position size would actually work out with today's numbers.