What is Position Sizing?

Position sizing is the methodology used to determine how large a position to take in a particular trade. It's a crucial aspect of risk management that helps traders protect their capital while maximizing potential returns.

Key Concepts

Calculation Methods

• Percentage of capital
• Fixed risk amount
• Volatility-based sizing
• Kelly criterion
• Risk/reward ratios

Risk Considerations

• Account size
• Market volatility
• Trading leverage
• Stop loss distance
• Market liquidity

Common Approaches

Fixed Percentage Risk

• Risk 1-2% per trade
• Account balance based
• Adjusts for volatility
• Maintains consistency

Position Scaling

• Pyramiding into positions
• Scaling in/out
• Multiple targets
• Risk adjustment

Related Terms

• Risk Management
• Stop Loss
• Leverage
• Risk-Reward Ratio