Risk per Trade

Key idea

Position size should be derived from a fixed percentage of account risk you're willing to lose if the trade's invalidation is hit — not from a round-number share count or how confident the setup feels. Deciding risk first and sizing second removes the single most common source of blown accounts: oversized bets on a bad day.

How to apply it

• Pick a fixed risk-per-trade percentage (commonly 0.5%-2% of account equity) and keep it consistent regardless of conviction.
• Identify the technical invalidation level for the setup before calculating anything else.
• Calculate position size from: (account size × risk %) ÷ (entry price − invalidation price).
• Never size up because a setup 'feels' better — conviction changes take frequency, not risk per trade.

Example

A $50,000 account risking 1% per trade has a $500 loss budget. If entry is $100 and technical invalidation is $95 ($5 of risk per share), the position size is 500 ÷ 5 = 100 shares — regardless of how good the setup looks.

Checklist

• I have a fixed risk percentage I use on every trade
• I calculated invalidation before position size, not after
• My position size came from the risk-per-share formula, not a round number
• I didn't size up because this trade 'felt' better than usual

Common mistakes

• Sizing positions by a round share count instead of calculated risk
• Increasing risk per trade on high-conviction setups
• Sizing before defining where the setup is actually invalidated
• Averaging into a losing position without a fresh risk calculation