How Position Sizing Saved Me From Blowing Up My Account
When I first started trading, I thought it was all about finding the perfect entry. I obsessed over chart patterns, moving averages, and RSI levels. I had some winners and thought I was on the path to something big. But then, almost like clockwork, one trade would come along and wipe out days or even weeks of progress.
That one trade wasn’t necessarily a bad idea. The problem? I’d gone in too heavy.
It wasn’t until later—after a few painful losses—that I learned about position sizing. And honestly, it changed everything.
What Is Position Sizing, Really?
Position sizing is just figuring out how much to put on the line in a single trade. It’s how you decide the size of your trade based on how much you’re willing to lose.
It sounds like a small detail, but it’s one of the most important parts of risk management. It protects your account from emotional decisions, helps you stay in the game longer, and gives structure to your trading.
The Moment It Clicked for Me
I had about £6,000 in my account. I was trading a US tech stock that had pulled back to ‘support’. Everything looked solid. I went in with half my account.
It dropped 5% the next day. That was a £150 loss on a trade I didn’t think twice about sizing. Not huge, but it rattled me.
So I scaled back the next few trades. But because I was reacting emotionally, I was inconsistent. One trade was small, the next was big. I didn’t have a plan.
Eventually, I looked into proper risk management. That’s when I found out that professional traders don’t risk more than 1% or 2% of their account per trade & use a position size calculator to figure out how much to place on each trade.
Why Proper Sizing Matters
It’s not about playing small. It’s about staying consistent. Here’s what proper position sizing helps with:
- Surviving losing streaks: Even good traders have bad weeks. A string of five losses at 1% risk per trade means you’re down 5%. At 10% risk per trade, you’re down 50%.
- Reducing stress: When you know what you stand to lose, you stop obsessing over every tick. The pressure eases up.
- Removing guesswork: Instead of sizing based on gut feel or excitement, you base it on clear rules.
- Letting your edge play out: If your system works 60% of the time, you need enough trades to let those probabilities do their thing.
How I Size My Trades Now
I risk 1% of my account per trade, sometimes 2% if the setup is strong and the stop is tight. If I have a £5,000 account, that means risking £50–£100 per trade.
To figure out how many shares or contracts that means, I work backwards:
- What’s my stop loss distance?
- How much do I want to risk?
- Divide the risk by the stop to get my size.
Let’s say:
- Stop is 20 points
- Risk is £50
- £50 ÷ 20 = 2.5 contracts (rounded to nearest lot/contract/share depending on the market)
That way, even if I’m wrong, I know the damage is controlled.
Stocks, Forex, Indices — It Applies Everywhere
Position sizing isn’t just a forex thing or a stock thing. It applies across all markets:
- Forex: You size based on pip value, which can change depending on currency pair and account currency.
- Stocks: You size based on share price and stop loss distance.
- Indices: You factor in the points risked and the value per point.
No matter what you trade, sizing properly helps you trade safely and consistently.
It’s Not About Being Right Every Time
This was a big mental shift for me. I used to think every trade had to be perfect. Now, I treat each one like a coin toss with an edge.
I might be right six times out of ten. The wins are bigger than the losses. The key is not blowing up on the four that go wrong.
And that’s where position sizing comes in.
If You’re New: Start Small, Think Long-Term
When you’re just getting started, there’s a temptation to go big, especially after a few winners. But that’s usually when the market reminds you who’s in charge.
Start small. Size every trade. Risk the same percentage each time. It feels boring at first, but it gives you staying power.
I’d rather make steady progress than blow up and start over. And trust me, I’ve done both.
Final Thoughts
Position sizing isn’t flashy. It won’t make headlines. But it’s the backbone of every successful trader I know.
Whether you use a spreadsheet, a notebook, or a dedicated calculator, just make sure you’re sizing your trades. Know your risk before you click “buy.”
Because at the end of the day, trading isn’t just about being right. It’s about managing what happens when you’re wrong.
Disclaimer: This article is for informational and educational purposes only. It is not financial advice. Always speak to a qualified professional if you’re unsure about your trading risk or financial situation.
James is a full-time UK-based trader for prop firms and using private capital since June 2010. Based in the Edinburgh, Scotland he has been active in the UK finance space for the last 10 years and helps other UK traders and investors calculate lot sizing, position sizing and investing with helpful tools.