Position Sizing

Position sizing determines how many lots to trade based on your account size, risk tolerance, and the specific setup. It's the answer to "how big should this trade be?" — and getting it right is arguably more important than your entry signal. No strategy survives if individual trades are too large relative to your account.

The standard approach is the percentage risk model: decide what percentage of your account you're willing to risk on a single trade (1-2% is common), determine your stop-loss distance in pips, then calculate the lot size that makes your dollar risk equal to your chosen percentage. For example, on a $10,000 account risking 1%, your max risk per trade is $100. With a 50-pip stop loss on EUR/USD, that means 0.2 standard lots (2 mini lots).

Position sizing also controls the emotional experience of trading. If your positions are sized so that a loss doesn't materially affect your financial wellbeing, you can make rational decisions. If every pip feels like a big deal, your positions are too large. Scale down until you can watch the chart without anxiety — that's roughly the right size for your current account and skill level.