How to Calculate Position Size
To calculate position size, divide the money you will risk by the distance from your entry to your stop. The size is the output of that division, never an input to it — choosing a size first and then finding a stop that fits it inverts the whole procedure.
Everything difficult about this is decided before the arithmetic. Once the risk and the stop exist, the size is one division and there is nothing left to get wrong.
Before you start
A risk per trade you decided before opening the chart, as a percentage or an amount. One percent, half a percent, whatever figure you could take twenty times in a row without changing how you behave.
A stop price chosen from the chart, not from the size you wanted. Where the idea is wrong. That level exists independently of how much you would like to trade.
Your account balance as of today, not as of your best month. The risk percentage applies to what is actually there.
The steps
1. Convert your risk percentage into money
Multiply the account balance by the percentage. On 10,000 at 1%, that is 100. This number is decided before you look at any chart and it does not move.
2. Find where the idea is wrong and put the stop there
Below the structure, beyond the level, outside the ordinary movement — whatever your method says. Place it where being there proves you wrong.
3. Measure the distance from entry to stop
In points, pips, ticks or currency per unit — whichever your instrument quotes. Write the number down before doing anything else.
4. Divide the risk by the distance
100 of risk over a 5-point stop is 20 units. That is the position, and it was not chosen — it was produced.
5. Convert into whatever your instrument trades in
Shares are the answer directly. Forex needs the pip value: risk divided by stop-in-pips times pip value. Futures needs the tick value. The division is identical.
6. Round down, never up
20.7 units becomes 20. Rounding up is a silent decision to carry more risk than you set, usually made for tidiness.
7. Add the cost before you commit
Commission and spread come out of the same budget. On a small stop they are a meaningful share of the 100, and ignoring them means the real risk exceeds the planned one.
How to tell it worked
The size was the last number you calculated, not the first. If you knew the size before you knew the stop, the procedure ran backwards.
Multiply size by stop distance and it comes back to your risk figure, within rounding. That is the one-line check and it takes 5 seconds.
Widening the stop by 2 times halves the size. If it does not, the division was not the thing producing the answer.
And the same procedure works on the next instrument without changing anything except the value of one unit.
What the arithmetic assumes
It assumes the stop fills at the stop. On this site’s shared series a round trip measures about 2%
of the median bar range of 0.493, and it exceeds 10 percent of the bar on 15 of 576 bars. The figures
are in research/series-measurements.json.
It also assumes one position at a time. Three correlated positions each risking 1% is 3% on one idea, and the arithmetic above cannot see that.
Three worked conversions
Stocks. 10,000 account, 1% risk, entry 50, stop 47. Risk is 100, the distance is 3, so the position is 33 shares. The exposure is 1,650 — a sixth of the account, which is why exposure and risk are different numbers.
Forex. 10,000 account, 1% risk, a 40-pip stop on a pair worth 10 per pip at one standard lot. Risk is 100, the denominator is 40 × 10 = 400, so the position is 0.25 lots. Widen the stop to 80 pips and it halves to 0.125.
Futures. 10,000 account, 1% risk, a 12-tick stop on a contract worth 12.50 a tick. Risk is 100, the denominator is 12 × 12.50 = 150, so the answer is 0.67 contracts — which rounds down to zero. That is the arithmetic saying the trade does not fit the account, and it is a real answer rather than an error.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, 34 have an instruction-shaped
title about position sizing, at a median of 6,157 views across 33 channels. Lot size specifically
appears in 14 at 127,651 and risk management in 55 at 2,522. The counts come from
site/rank_howto.py, which deduplicates by video id.
34 videos at 6,157 against 14 at 127,651 for the same arithmetic named as lot size. Twenty times the audience per video for the version with a specific instrument attached, which says the demand is for the number rather than for the concept.
The answer to the question on that chart is no, and it is the single most common way this procedure gets subverted. A stop belongs where the idea is wrong; moving it closer to permit a larger position moves it to where the idea is still right. The position is then correctly sized against a stop that ordinary movement will hit — the arithmetic is intact and the input was corrupted.
When it fails
The failure is a stop set to justify a size, and it produces a record that looks disciplined. Every trade risks exactly 1%, every position is neatly calculated, and the stops sit inside normal movement because that is where they had to be to permit the size. The account is then stopped out repeatedly by nothing in particular, and the arithmetic will never reveal it — the division was correct every single time and the denominator was chosen for the wrong reason.
The second failure is rounding up. It is a silent breach of your own limit.
A third is ignoring correlation across open positions. Three at 1% on one theme is 3%.
A fourth is sizing from a peak balance. The percentage applies to today’s number.
A fifth is forgetting the cost. It comes out of the same risk budget.
And a sixth is taking the minimum size when the answer came out below it. That means the trade does not fit the account, not that the rule should bend.
Related
Position sizing covers why this is the decision that outlives the entry. Stop-loss is where the denominator comes from. And risk per trade is the numerator, decided before any chart is open.
The order is the whole thing. Decide the risk, find where the idea is wrong, measure the distance, then let the size be whatever those three produce. I have never regretted a trade sized that way and I have regretted every one where I picked a size first and then went looking for a stop that would accommodate it.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.