Why position sizing is the most important math you'll do
New traders obsess over where to enter and exit. Experienced ones obsess over how big. The reason is mathematical: a single oversized losing trade can wipe out the gains of dozens of smaller wins. A correctly-sized losing trade barely moves the needle.
The formula this calculator uses is the standard fixed-fractional sizing rule:
position_size = (capital × risk_pct) / |entry − stop_loss|In plain English: divide the dollars you're willing to lose on this trade by the dollar distance between entry and stop. The result is the number of units you should buy (or short).
An example
- Capital: $1,000
- Risk per trade: 1% = $10 max loss
- Entry: $80,000 (BTC)
- Stop loss: $78,000 (2.5% below entry)
Distance from entry to stop is $2,000. You're willing to lose $10. So position size = $10 / $2,000 = 0.005 BTC. At $80,000 entry, that's a $400 position. If stop hits, you lose $10 (1% of capital). If you'd taken a $1,000 position instead, the same stop would lose you $25 (2.5% of capital) — a 2.5× larger drawdown for the same trade idea.
Why 1–2% risk per trade?
With 1% risk, you can lose 100 trades in a row before your account is gone. With 2%, it's 50. With 5% risk, just 20 consecutive losses zeros you out — and 20-loss streaks happen more often than retail traders expect, especially on 50% win-rate strategies during drawdown periods.
Real strategies have streaks. Strategy edge is the long-run average — over the short run, variance can produce 8–15 losing trades in a row even on a 60% win-rate strategy. Your sizing has to survive that streak with capital intact, not just on average.
Common sizing mistakes
Sizing by gut. "This trade looks good, I'll take a big position." If "looks good" actually meant anything, you'd be retired by now. Size every trade the same way: by the math.
Moving the stop loss. "It's almost at my stop, but I think it'll bounce, let me move it down 2%." This breaks position sizing entirely. Once you decide the SL, the SL is fixed. Otherwise the position you took is no longer the position you sized for.
Forgetting fees and slippage. If you size a trade for exactly 1% risk based on entry and stop prices, you'll often realize 1.1–1.3% loss after fees and slippage on the entry, slippage on the exit, and any spread cost. Build in 10–20% buffer; size for 0.85% if you want a true 1% real-world risk.
Risking different amounts on different trades. "This setup is higher conviction, let me size 3%." This is how account blowups happen. Conviction is uncorrelated with outcome. Same risk per trade, every trade.
What this calculator doesn't do
- Fees and slippage. The math is pure entry-to-stop distance. Real losses are larger.
- Leverage. If you're trading on margin, your position can be larger than your capital. The risk-per-trade math is the same, but capital at risk is what matters, not capital deployed.
- Correlation across positions. Holding 5 alt longs at 1% each is closer to 5% concentration than 5 separate 1% bets. Position sizing per trade doesn't account for portfolio-level risk overlap.
- Black swan events. A flash-crash or exchange halt can blow past your stop loss. Real drawdowns can exceed sized risk by 2–5× on bad days.
How this connects to bot operation
This is the human-trader version of position sizing. In an automated bot, the same math applies per-deal — but the bot also needs fleet-level sizing rules: how many bots can be open on the same coin, how much total capital can be in the market at once, how to scale down when the portfolio is in drawdown. Those rules are the subject of the nine-gate framework — specifically Gate 9 (multi-bot coordination with per-coin exposure caps).
For now, if you're sizing manually, this calculator does the per-trade math correctly. Use it every trade until it becomes second nature.