🔔 AlertsKnowledge Base › Position Sizing
Risk Management

Position Sizing

Position sizing determines how much of your portfolio you put into a single trade. It's arguably the most important risk management decision. Even a great strategy fails if positions are sized too large.


The 1-2% rule

Risk no more than 1-2% of your total portfolio on any single trade.

Example: $10,000 portfolio. Max risk = $100-200 per trade.
If you buy AAPL at $300 with a stop-loss at $290 ($10 risk per share),
you can buy 10-20 shares -- not more.

This ensures a string of 10 losses only costs you 10-20%, not everything.

Adjusting for conviction

Not all ideas are equal. Size positions by confidence:
  High conviction (multiple signals aligned): up to 2% risk.
  Medium conviction (1-2 signals): 1% risk.
  Low conviction / speculative: 0.5% risk.

Never put more than 10-15% of your portfolio in one stock.

Before earnings rule

Earnings can gap a stock 15-25% overnight. Consider cutting position size by 50% before earnings unless you've specifically analyzed the setup. The few extra percent of gain is rarely worth the tail risk.

✓ Quick Tips
  • Pros obsess over how much to risk, not just whether to buy.
  • You can be right 40% of the time and make money with good position sizing.
  • Overconfidence = oversizing = one trade wiping out months of gains.
  • After a losing streak, reduce size -- protect capital first, recover second.

Related: Stop Loss OrdersDiversificationRisk/Reward Ratio

← All topics