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
