Position Sizing: The Risk Management Decision Most Traders Skip
How much to risk per trade matters more than most entry or exit decisions.
Position sizing determines how much capital is at risk on any single trade, independent of how good the underlying thesis is. Even a strong strategy can produce ruinous drawdowns if position sizes are too large relative to account size.
A common framework is risking a small, fixed percentage of total capital per trade (often cited around 1–2%), which limits the damage from any individual losing streak.
Position sizing should account for both the stop-loss distance and the instrument's typical volatility — the same dollar amount can represent very different risk levels depending on the asset.
This guide is general education for informational purposes only and does not constitute personalized investment advice from Veridian.