Position Sizing Made Simple

Position Sizing: The Mathematics of Survival

Titan Playbook Series — Article 9 of 10

The Overleverage Epidemic

Most blown accounts don’t die from bad analysis. They die from bad math.

Specifically: Position sizing that ignores risk.

The trader sees a “perfect” setup. They go all-in. Or they risk 10% of their account on one trade. The setup fails (as setups sometimes do). The account is crippled.

One trade shouldn’t threaten your survival. If it does, your size is wrong.

The “Conviction” Trap

“But I’m really confident about this trade.”

Confidence doesn’t change probabilities. A 60% win rate is still a 60% win rate, whether you’re confident or not.

And even high-confidence trades lose. Sometimes multiple times in a row.

Sizing based on confidence is sizing based on emotion. And emotion-based sizing always fails eventually.

The 1-2% Rule

Risk 1-2% of your account per trade. Period.

Not per position. Per trade. If you have 5 positions, each is 1-2%. You’re not risking 10% total — you’re risking 5 separate 1-2% risks.

Why this works:

• 10 consecutive losses at 1% = 10% drawdown (survivable)
• 10 consecutive losses at 10% = 100% drawdown (ruin)

The math is brutal. Respect it.

Calculating Position Size

Simple formula:

Position Size = (Account Risk $) ÷ (Stop Loss Distance in $)

Example:

• Account: $10,000
• Risk per trade: 1% = $100
• Entry: $50
• Stop: $48 (2 points away)
• Position size: $100 ÷ $2 = 50 shares

The stop distance determines your position size. Not your confidence. Not your “feeling.” The math.

Learn With Titan: Sizing Scenarios

| Account | Risk % | Risk $ | Stop Distance | Position Size |

|———|——–|——–|—————|—————|

| $5,000 | 1% | $50 | $1.00 | 50 shares |

| $5,000 | 1% | $50 | $0.50 | 100 shares |

| $25,000 | 2% | $500 | $2.50 | 200 shares |

| $25,000 | 2% | $500 | $5.00 | 100 shares |

Notice: Same account, same risk %, different position sizes based on stop distance.

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

Next in series: The Portfolio Heat Map: Managing Multiple Positions →

Word Count: ~650 words

Reading Time: 3 minutes

Level: Intermediate