All terms
Deciding how much to risk on a single trade, which matters more than entry.
Position sizing is the practical expression of risk management. A common approach is to risk a fixed small percentage of your account on any one idea, typically one or two percent.
Get this right and a run of losses is survivable. Get it wrong and one bad trade ends the account, no matter how good the analysis was.
With a 5000 dollar account risking 1 percent, you accept losing 50 dollars if you are wrong. That determines your size, given your stop.
That position size is decided by conviction. Size is decided by what a loss costs you, which is arithmetic. Conviction belongs in whether you take the trade at all, and it is the most expensive input to size with.
Common questions
How much should I risk on one trade?
How do I actually calculate it?
Where this comes up on the site
The guides that actually use this word, rather than a list of everything we have written.
Where to go next
More trading terms
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