Position Sizing: The Math That Keeps You Alive

The fixed-risk model (the only one that matters for beginners)

Risk a fixed dollar amount per trade, calculated as a percentage of your account. The most common: 1% per trade, max 3% aggregate open risk. Position size = (account × 1%) / (entry − stop). So on a $50,000 account with entry at 100 and stop at 99, you risk $500 and can buy 500 shares. This produces consistent risk regardless of instrument, volatility, or timeframe.

Why "set size by gut" blows accounts

Unsized discretionary traders oversize on high-conviction trades and undersize on their actual edge. The result: one big losing trade wipes out a month of small winning trades. Fixed-risk sizing flattens the emotional distortion. Every trade feels identical because the dollar risk is identical. This predictability is what builds discipline.

When to consider fractional Kelly

Once you have 200+ trades of data and a stable win rate + R:R, you can consider fractional Kelly. Half-Kelly is the industry standard because full Kelly produces uncomfortable drawdowns. For most prop firm traders, 1% fixed risk is safer than half-Kelly because the drawdown tolerance is tight.