Position Sizing: The Mathematics of Survival

Position Sizing: The Mathematics of Survival

Titan Playbook Series. Article 9 of 10

The Kelly Criterion (Advanced)

For experienced traders with tracked data:

Kelly % = (Win Rate × Avg Win) – (Loss Rate × Avg Loss) ÷ Avg Win

Example:

  • Win rate: 55%
  • Avg win: $200
  • Avg loss: $100
  • Kelly % = (0.55 × 200) – (0.45 × 100) ÷ 200 = 32.5%

    • Never use full Kelly. It’s too aggressive. Use “fractional Kelly”. 1/4 to 1/2 of the Kelly percentage.

    In this example: 8-16% of account per trade (instead of 32.5%).

    The Position Size Checklist

    Before every trade:

  • [ ] Account risk % calculated (1-2%)
  • [ ] Stop loss placed at invalidation point
  • [ ] Position size = risk $ ÷ stop distance
  • [ ] Total risk comfortable even if trade fails

    • If any box isn’t checked, don’t take the trade.

    Action Items

  • [ ] Calculate your current position size for your next 3 setups
  • [ ] If any is >2% account risk, reduce it
  • [ ] Create a position size calculator spreadsheet

    • Word Count: ~650 words

    Reading Time: 3 minutes

    Level: Intermediate

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