Convert your risk budget into a precise position size and keep losses consistent.

Position sizing is the core of risk management. It answers a simple but powerful question: how much should you buy or sell so that a stopped-out trade costs exactly what you planned? Traders who ignore position sizing often blow up not because their ideas are bad, but because their size is inconsistent.

Why position sizing matters

Two traders can take the same entry and exit, but if one sizes too large, a normal loss becomes a serious drawdown. If the other sizes too small, even good trades do not move the account. A sizing rule creates balance and keeps your performance measurable.

Position sizing also helps you avoid emotional decisions. If your trade size is already defined, you are less likely to double down or change your stop impulsively.

The basic formula

The classic method uses three inputs:

• Account size
• Risk percentage
• Stop distance

The calculation is:

• Risk budget = account size × risk percentage
• Position size = risk budget ÷ stop distance

If your account is $10,000 and you risk 1%, your risk budget is $100. If your stop distance is $2,000, your position size is 0.05 BTC.

Fixed percentage vs fixed dollar risk

Both can work, but fixed percentage risk scales automatically as your account grows or shrinks. Fixed dollar risk is easier to understand but can become too aggressive after a drawdown. The TradeOrbit calculator supports both so you can choose what fits your style.

Choosing the right risk percentage

Most traders use 0.5% to 2% per trade. Smaller percentages reduce volatility and help you survive losing streaks. Higher percentages require strong discipline and a proven edge. The best percentage is the one you can follow consistently without breaking your rules.

Consider these factors:

• Market volatility: higher volatility usually requires lower risk.
• Strategy win rate: lower win rates need smaller risk.
• Timeframe: shorter timeframes often suffer more from fees and noise.

The role of stop distance

Stop distance is the most important input. A wider stop means a smaller position. A tighter stop means a larger position. If your stop is not based on market structure, the size calculation becomes meaningless. Always place the stop where the trade is invalidated, not where it fits a preferred size.

Leverage and margin

Leverage does not change the risk from your stop distance. It changes the amount of margin you need to open the position. The calculator shows required margin so you can avoid over-allocating capital. If the margin is too high, reduce the position size rather than tightening the stop artificially.

Example calculation

• Account size: $12,000
• Risk percentage: 1%
• Risk budget: $120
• Entry: 40,000
• Stop: 38,000
• Stop distance: 2,000

Position size = 120 ÷ 2,000 = 0.06 BTC. The notional size is 0.06 × 40,000 = $2,400. At 10x leverage, required margin is about $240.

Common mistakes to avoid

• Increasing size after a loss to recover quickly.
• Using a stop that is too tight just to get a bigger size.
• Forgetting fees and funding, which reduce effective risk budget.
• Applying the same size across assets with different volatility.

Build a repeatable sizing routine

A simple routine works well: 1. Identify entry and stop. 2. Decide risk percentage or dollar amount. 3. Calculate position size. 4. Confirm margin requirements. 5. Execute the trade and stick to the plan.

Key takeaways

• Position sizing keeps losses consistent and measurable.
• The stop distance is the driver of trade size.
• Leverage changes margin, not the risk from your stop.
• A consistent sizing rule reduces emotional decisions.

Use the TradeOrbit Position Size calculator before every trade to keep your risk framework disciplined.