Almost everyone learning to trade starts in the same place: looking for a better entry. A cleaner setup, a sharper signal, the indicator that finally works.
It is the wrong end of the problem. The variable that determines whether an account is still there in a year is not where you get in. It is how much you put on.
The arithmetic nobody enjoys
Losses and gains are not symmetrical, and the asymmetry gets worse quickly.
| Account down by | Gain needed to recover |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |
A 10% drawdown is an ordinary run of bad luck. A 50% drawdown requires you to double what is left simply to get back to where you started — and you now have half the capital with which to do it.
This is the whole argument for position sizing. Not caution for its own sake: arithmetic.
Risk per trade, decided before entry
The workable approach is to define, in advance, the most you are willing to lose on any single trade — expressed as a percentage of the account, not a cash figure. Many educational frameworks use somewhere around 1%. The precise number matters less than the fact that it is fixed before you look at the chart.
From that, position size follows mechanically:
Position size = (Account × Risk %) ÷ Distance to stop
With a £10,000 account, 1% risk, and a stop 25 points away:
£10,000 × 0.01 = £100 at risk
£100 ÷ 25 points = £4 per point
That is the position. Not the position you feel like taking, not the one that would make the trade "worth it" — the one the arithmetic gives you.
The consequence people resist
The formula has an implication that catches everyone out: wider stops mean smaller positions.
If a setup needs a 100-point stop because that is where the idea is genuinely invalidated, the position must be a quarter of the size you would take on a 25-point stop. Same risk, different size.
The temptation is to keep the position and tighten the stop instead, so the trade "makes sense". That inverts the process — it places the stop where the position size demands, rather than where the market says the idea is wrong. It is the most common way a sound approach quietly becomes an unsound one.
Volatility changes size, not nerve
Gold is a useful example. XAU/USD can move several dollars in a minute around a US data release. The stop that made sense in a quiet Asian session is not the stop that makes sense at 13:30 London time.
Higher volatility means a wider stop is needed for the same idea, which means a smaller position for the same risk. Traders who keep their size constant and let volatility vary are, without intending to, risking several times more on some days than others.
Cryptoasset markets take this further: they trade continuously, carry high volatility, and sit largely outside UK regulatory protection. Sizing discipline matters more there, not less.
Leverage does not change the maths
Leverage changes how much capital is required to hold a position. It does not change how much you lose if price moves against you.
Traders often treat available leverage as a suggestion about size. It is not — it is a financing mechanism. The position size is still whatever the risk calculation says. What leverage genuinely changes is how little adverse movement it takes for a position to be closed out, which is a reason for more care, not less.
What this looks like in practice
- Decide your risk per trade before you open a chart, and write it down
- Place the stop where the idea is wrong, not where the size is comfortable
- Calculate the position from the stop distance every time
- Record it: entry, stop, size, risk, and what you were thinking
- Review the record monthly, looking for the trades where you broke your own rule
That last step is where most of the learning is. Almost every trading journal, read honestly after a few months, shows the same thing: the worst outcomes came from the trades that were larger than the rules allowed.
An honest note
None of this makes anyone profitable. Position sizing is a way of controlling how much a mistake costs, so that a run of them does not end the exercise. Plenty of well-sized approaches lose money.
Trading involves significant risk and you may lose some or all of your capital. Our programmes are educational: they teach process, analysis and risk management. They do not promise returns, and past performance is not indicative of future results.