Essential 8 min read
Position sizing math, in under 10 minutes
The simple formula that prevents 90% of account blow-ups. With a worked example on a $25K account.
Position size = (Account size × Risk %) ÷ Stop distance.
Worked example on a $25,000 account risking 1% per trade: risk budget is $250. If your stop is $1.25 away from entry, you can buy 200 shares ($250 ÷ $1.25). That's it — the setup's quality, your conviction, and your excitement about the trade have zero input into this formula. Position size is math, not feel.
The single biggest cause of blown accounts isn't a bad setup — it's sizing a mediocre setup like it's a sure thing.