Ask blown up traders what killed their account and you will rarely hear about a bad entry. You will hear about size. Position sizing is the difference between a losing trade that stings and a losing trade that ends the game. This guide covers the one formula that matters, a fully worked example, and the mistakes that keep repeating across every market cycle.
Why size beats entry
A mediocre entry with correct sizing survives to take the next trade. A perfect entry with oversized risk can still wipe you out, because being right eventually means nothing if one wrong move empties the account first. Professional risk management starts from a simple admission: any single trade can fail, regardless of how good the setup looks.
Sizing converts that admission into arithmetic. Instead of hoping, you decide in advance exactly how much a wrong opinion costs, and you make sure that cost is boring.
The formula
Position size = (Account x Risk percent) divided by (Entry minus Stop distance per unit)
In plain language: first decide the maximum money you are willing to lose on the trade. Then measure the distance between your entry and your stop loss. Divide one by the other. The result is how many units you may buy. That is the entire method.
The most common version risks a fixed fraction of the account per trade, typically 1%. Fixed fractional risk means a losing streak hurts but never cripples. Ten consecutive losses at 1% each leaves you with roughly 90% of your account, still fully in the game.
Equity survival across a losing streak
Account equity remaining after consecutive full-stop losses, by fixed risk per trade. The red dashed line marks the halfway point. At 1% risk, even 20 straight losses barely dents the account.
The survival math, in numbers
Fixed fractional risk applied to back-to-back losses. The last column is the number of straight losses at which equity first drops below 50%.
| Risk per trade | After 10 straight losses | After 20 straight losses | Losses to halve the account |
|---|---|---|---|
| 0.5% | 95.1% | 90.5% | 139 |
| 1% (the default) | 90.4% | 81.8% | 69 |
| 2% | 81.7% | 66.8% | 35 |
| 5% | 59.9% | 35.8% | 14 |
| 10% | 34.9% | 12.2% | 7 |
A worked example
Suppose you manage a $10,000 account and risk 1% per trade. You want to buy at $65,000 with a stop at $62,400. Work through it step by step.
| Step | Calculation | Result |
|---|---|---|
| Risk budget | $10,000 x 1% | $100 |
| Stop distance | $65,000 - $62,400 | $2,600 per unit |
| Position size | $100 / $2,600 | 0.03846 units |
| Notional value | 0.03846 x $65,000 | About $2,500 |
The trade controls roughly $2,500 of exposure on a $10,000 account. If the stop is hit, you lose $100 plus fees, and nothing else. Every outcome was defined before the order was placed, which is precisely the point.
Anatomy of the worked example
Entry and stop define the risk per unit; the formula converts the $100 risk budget into a position size.
Leverage does not change your risk
This is the misconception that empties the most accounts. Leverage determines how much margin you post, not how much you can lose. The loss on a position is set by the size of the position and the distance to your exit. A $2,500 notional position falls in value identically whether you posted the full amount or a tenth of it as collateral.
What leverage actually changes is fragility. Higher leverage on the same notional means a smaller adverse move reaches your liquidation price before it reaches your planned stop. If your liquidation can trigger before your stop, the exchange will close you at its price, not yours. Size with the formula, then choose the lowest leverage that lets the position breathe.
Same position, different leverage
The identical $2,500 notional position funded at increasing leverage. The dollar risk never changes — only the distance to a forced exit does.
| Leverage | Margin posted | Approx. adverse move to liquidation |
|---|---|---|
| 1x (no leverage) | $2,500 | None — cannot be liquidated |
| 5x | $500 | ~20% |
| 10x | $250 | ~10% |
| 20x | $125 | ~5% |
Simplified illustration for an isolated position; exchanges also apply maintenance margin and fees, which pull liquidation slightly closer. The planned $100 loss from the 1% formula is identical at every level — liquidation only matters if your stop fails to fire first.
The mistakes that blow accounts
- Moving the stop to avoid taking the loss. The formula assumed the original stop. Break it and your real risk is undefined.
- Averaging down without a plan. Adding to a loser doubles the exposure and the emotion at the same time. If averaging down is your strategy, size and stop it as deliberately as the first entry.
- Revenge sizing. Risking double after a loss to win it back fast is how one bad week becomes a dead account. The percentage stays fixed. The mood does not get a vote.
- Full capital entries. Any position that can delete the account is not a trade, it is a coin flip with paperwork.
- Ignoring correlations. Five longs on correlated assets is one trade with five times the fees. Risk budgets apply to the portfolio, not just the position.
Journal the trades, not just the results
A sizing discipline only sticks when it is measured. Log every trade with entry, stop, size, risk percent, and the reason you took it. After a few dozen entries, patterns appear: which setups deserve their risk, which emotions interfere, and whether your winners are actually paying for your losers. WolfSeek's Trade Journal and Track Record were built for exactly this loop, so your history becomes evidence instead of memory.
Frequently asked questions
Is 1% the right number for everyone?
It is the most common default because it survives long losing streaks without drama. More aggressive traders run 2%, and professionals managing other people's money often run less. The right number is one you can follow on your worst day, after three losses in a row, without renegotiating with yourself.
Does leverage increase my losses?
Leverage increases fragility, not losses directly. Losses come from position size and exit distance. Higher leverage makes liquidation arrive sooner than your stop can, which effectively converts a planned loss into an unplanned, larger one. Keep the notional sized by the formula and use modest leverage to fund it.
What if my stop distance is very wide?
Then the formula simply produces a small position. A wide stop with correct sizing is a legitimate trade. A wide stop with the same size you always use is the account killer. Let the math shrink the position, or tighten the plan until the numbers make sense.
How many positions should I have open at once?
Enough that no single liquidation can threaten the account, and few enough that you can actually watch them. Many traders cap total portfolio heat, the sum of open risk, at 3% to 6%. Correlated positions count as one exposure, no matter how many tickers they wear.
The final word
Entries get the attention. Sizing pays the bills. Decide your risk percent, compute the size from the stop, and let boring arithmetic protect the account while your strategy does its work over many trades.
WolfSeek is an intelligence platform, not a trading platform. It holds no funds, executes no trades, and promises no returns. Nothing here is financial advice. Do your own research, and size every position so that being wrong is just another data point.
Keep Learning
Position sizing keeps one loss survivable; funding is the quieter, recurring cost - see how funding rates slowly drain leveraged perp trades, and pair the math with the psychology in the Anti-Greed Manifesto.