RISK Risk & Sizing · February 2026 · ~4 min
Position sizing: compute risk before the entry
Ask "how much should I buy" and most answers come from feeling: size up when confident, down when unsure. The correct answer is a division:
Fixed-fractional sizing
Size = money you may lose ÷ stop distance. Example: account 10,000, risk 1% per trade (may lose 100), entry 100, stop 95 (5% away) — size = 100 ÷ 5% = 2,000. Confidence doesn't change the formula; it only nudges risk within a 0.5–2% band.
Why a fixed fraction
- Repeatable: equal risk per trade is what makes win rate and payoff statistically meaningful;
- Blow-up proof: ten straight 1% losses draw down ~10%; ten straight 10% losses halve you twice;
- De-emotioned: the formula outputs the size, so "size up to win it back" loses its entry point.
Set the stop first, then compute the size — reverse the order and everything falls apart. The stop isn't optional; it's the denominator.
Drill: in replay training, force yourself to write the stop price before every entry — two weeks builds the reflex. For what to do after losses arrive, see drawdown management.