Never Risk More Than 5% Per Trade: Position Sizing and Stop Math
Most people pour energy into "what to buy" and ignore the question that decides survival: how much to buy on each trade. Position sizing is what keeps you at the table after a losing streak.
Core rule: risk ≤ 1%–2% of total capital per trade
Note it's "risk," not "position size." Risk = position size × stop distance. Example: on $100k, with a 2% risk cap ($2,000) per trade:
- Stop at -5% → max position = 2,000 / 5% = $40,000
- Stop at -10% → max position = 2,000 / 10% = $20,000
Wider stop, smaller position — so whatever your stop, hitting it always costs the same fixed $2,000.
Why this matters more than stock picking
Losing streaks are inevitable. Here's your remaining capital after 10 consecutive losses at different risk levels:
| Risk per trade | Left after 10 losses |
|---|---|
| 2% | ~82% |
| 5% | ~60% |
| 10% | ~35% |
The harder you risk per trade, the likelier you're knocked out before things turn. Sizing is how you stay solvent through bad luck.
Don't let one sector eat the whole book
Overweighting a single stock or sector quietly voids your sizing rules. A simple cap: ≤25% per stock, ≤40% per sector. Stock Compass's concentration warning flags you when you breach it.
Summary
Position sizing isn't glamorous, but it's the only thing that lets you survive bad luck. Decide "max loss per trade" first, then work backward to size — not the other way around.
FAQ
What percentage should I actually risk per trade?
Most disciplined traders use 1%–2%. More aggressive can go to 3%, but rarely above 5%. The smaller your capital and the less your experience, the lower you should set it.
Are position sizing and stop-loss the same thing?
No, but they work together. The stop sets "loss per share," sizing sets "how many shares" — multiply for "max loss on this trade." Cap that number first, then work back.