Position size is the number of shares, lots or coins that makes your loss at the stop equal to a fixed slice of your account. The formula: position size = (balance × risk %) ÷ stop distance per unit. With the 1–2% rule, a $10,000 account risks $100–$200 per trade, whatever the market or leverage.
Most blown accounts are not caused by bad entries. They’re caused by sizes that turn an ordinary losing streak into a hole too deep to climb out of. Position sizing is the part of trading you fully control.
Why the 1–2% rule exists
Losing streaks are normal. With a 50% win rate, a run of six losses in a row will show up over a few hundred trades. What matters is how much of your account survives it.
| Risk per trade | Account after 10 straight losses | Gain needed to recover |
|---|---|---|
| 1% | 90.4% | +10.6% |
| 2% | 81.7% | +22.4% |
| 5% | 59.9% | +67.0% |
| 10% | 34.9% | +186.8% |
(Each loss is a percentage of the remaining balance, so drawdowns compound: 0.99¹⁰ = 0.904.)
At 1–2%, a bad streak is a setback. At 10%, it’s a near-wipeout. The rule doesn’t make trades better; it makes mistakes survivable.
The formula, step by step
- Define the risk amount: balance × risk %. Example: $20,000 × 1% = $200.
- Define the stop from the chart—the price where your idea is wrong, typically beyond a support or resistance level. Not “whatever distance gives me a nice size”.
- Measure stop distance per unit: |entry − stop|.
- Divide: risk amount ÷ stop distance = position size.
- Round down to what your broker allows.
- Check notional and margin: make sure the resulting position is something you can actually hold.
The order matters. The stop comes from the chart; the size comes from the stop. Never the other way around.
Worked example: stocks
- Account: $25,000
- Risk: 1% → $250
- Entry: $50.00
- Stop: $47.50 (below a double bottom low)
- Stop distance: $2.50 per share
Position size = $250 ÷ $2.50 = 100 shares, a $5,000 position (20% of the account).
Notice what happened: the position is 20% of the account, but the risk is 1%. These are different numbers. If the stop is tighter—say $49.00—the same $250 risk buys 250 shares ($12,500 notional). If wider—$45.00—it buys only 50 shares.
Worked example: forex lots
Forex adds one step: converting pips into money.
For pairs where USD is the quote currency (EUR/USD, GBP/USD), the pip value is approximately:
| Lot size | Units | Pip value (USD-quoted pair) |
|---|---|---|
| Standard | 100,000 | $10.00 |
| Mini | 10,000 | $1.00 |
| Micro | 1,000 | $0.10 |
Formula: lots = risk amount ÷ (stop in pips × pip value per standard lot).
- Account: $10,000
- Risk: 1% → $100
- EUR/USD entry: 1.0850
- Stop: 1.0810 → 40 pips
- Pip value: $10 per standard lot
Lots = $100 ÷ (40 × $10) = 0.25 lots (2.5 mini lots, 25,000 units).
For pairs where USD is not the quote currency (USD/JPY, EUR/GBP), the pip value varies with the exchange rate. USD/JPY at 150.00: one pip (0.01) on 100,000 units = ¥1,000 ≈ $6.67. A 30-pip stop risking $100 then gives $100 ÷ (30 × $6.67) ≈ 0.50 lots. Use the pip calculator when in doubt.
Worked example: crypto
Crypto is sized in coins (or contracts), and its volatility forces wider stops.
- Account: $5,000
- Risk: 2% → $100
- BTC entry: $60,000
- Stop: $57,600 (4% below entry, under a support zone)
- Stop distance: $2,400
Position size = $100 ÷ $2,400 = 0.0417 BTC, about $2,500 notional.
Same account, tighter stop at $58,800 ($1,200 away): 0.0833 BTC, about $5,000—the whole account. That’s the moment to stop and ask whether the stop is realistic for Bitcoin’s normal swings. An ATR-based check helps: if the 4-hour ATR is $900, a $1,200 stop is only 1.3 ATR away, which is easily hit by noise. More on ATR in indicators explained.
Leverage doesn’t change the math
With 10× leverage, the 0.0417 BTC position needs about $250 margin instead of $2,500. Your risk is still $100 if the stop executes at $57,600. Leverage changes capital efficiency and liquidation distance, not the size the formula gives you. Make sure your liquidation price sits well beyond your stop.
Using ATR to set the stop
A stop that ignores volatility either gets hit by noise or sits so far away that the size becomes tiny. A common approach:
- Find the structural level (support, swing low).
- Add a buffer of 0.5–1 × ATR beyond it.
- Size from that distance.
Example: support at $100, ATR $2.00, buffer 0.5 ATR → stop at $99. Entry $103, distance $4. With $200 risk: 50 shares.
Fixed-fractional vs fixed-dollar risk
There are two common ways to apply the rule:
- Fixed fractional: risk a fixed percentage of the current balance. After a 10% drawdown on a $10,000 account, 1% is $90 instead of $100. Risk shrinks automatically when you’re losing and grows when you’re winning.
- Fixed dollar: risk the same amount—say $100—until you deliberately reset it, for example monthly. Simpler to track, but it doesn’t slow you down during a drawdown.
Fixed fractional is the more defensive of the two. Whichever you pick, write it down and change it only during a scheduled review, never mid-streak.
Total open risk
The 1% rule applies per trade. You also need a ceiling for everything open at once. A common approach is to cap total open risk at around 4–6% of the account.
| Open trades | Risk each | Total open risk |
|---|---|---|
| 2 | 1% | 2% |
| 4 | 1% | 4% |
| 6 | 1% | 6% |
| 4 (correlated) | 1% | Treat as ~4% on one idea |
If you’re already at your ceiling, a new setup means either passing or closing something first. This rule matters most in crypto, where most coins move together during sharp market-wide drops.
Scaling in
If you add to a position in stages, size the total from the final stop. Example: $200 total risk, stop $5 below the average entry. You can buy 20 shares at the first entry and 20 at the second, as long as the combined 40 shares × $5 average distance stays at $200. When the second entry is higher than the first, the average distance shrinks or grows accordingly—recompute every time.
Common mistakes
- Sizing first, stop second. Picking “100 shares” and then putting the stop wherever the loss feels acceptable. The stop then has nothing to do with the chart.
- Ignoring correlation. Three long positions in three altcoins at 1% each behave like one 3% trade when Bitcoin drops.
- Forgetting fees, spread and slippage. In fast markets, stops fill worse than planned. Size slightly smaller, or include an estimated cost in the stop distance.
- Moving the stop further away after entry. That silently increases risk beyond what you sized for.
- Raising risk % after a loss to “win it back”. That’s how streaks become drawdowns.
These habits are easier to catch with a journal—see chart-reading mistakes and building a review habit.
Position size and risk/reward work together
Sizing caps what you lose. Risk/reward determines how much you need to win to break even. A 1% risk with a 2:1 target means each winner earns about 2% and you need to win just over a third of the time to break even, before costs.
Tools to check your numbers
- Position size calculator: enter balance, risk % and stop.
- Pip calculator: pip values for any pair and lot size.
- Risk/reward calculator: ratio and break-even win rate.
SnapPulse runs the same calculation—balance × risk % ÷ stop distance—on your device once it has identified the invalidation level from your chart, so the size follows the stop rather than your mood.
Educational content — not financial advice.
