Position Sizing
Which comes first: the amount you buy, or the amount you can lose?
The idea
Position size converts a loss limit and invalidation distance into exposure.
In the real world
Risking $100 with a stop $2 away implies 50 units before fees and slippage.
Going deeper
Size is an output, not an input. It follows from the maximum you will lose and the distance to your invalidation: risk divided by distance gives the quantity.
The practical figure is always smaller than the arithmetic. Fees and spread consume part of the same budget, and the exit may not fill at your level — in fast markets it frequently does not, so the realised loss can exceed the planned one. Sizing from conviction instead reliably produces the largest position in the trade you were most confident about, which is not the same as the one most likely to work.
Where it stops applying
Fixed-fraction sizing ignores volatility differences between assets. Two positions of equal cash size in a stable and a volatile asset are not equal risk.
Why it matters
Size follows from a loss limit and an invalidation distance, rather than from conviction.
Try this today
Size from acceptable loss, then adjust for gaps, liquidity, and correlation.
Test yourself
You will risk £300, and your invalidation sits £4 below entry. What is the position size, and what makes the real figure smaller?
Show the answer
£300 divided by £4 is 75 units. Fees, spread and slippage all eat into the same £300, and the exit may not fill at the invalidation level, so the practical size is somewhat below 75.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.