How to Position Size

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How to Position Size

Let’s talk about something that doesn’t sound flashy but will make or break your trading account: position sizing.

If you’re a prop trader, this is even more important. Prop firms have strict daily and overall drawdown limits, and exceeding them means your account is gone — no second chances. Understanding how to position size properly can be the difference between a small, manageable loss and a failed evaluation or account termination.

Whether you trade futures, forex, or stocks, learning how to size your trades correctly is one of the most important skills you’ll ever develop. It’s the difference between surviving the long game and blowing up your account after a few bad trades.

Most traders struggle with this because they size trades based on emotion, not math. They think, “This setup looks great, I’ll go a little bigger,” or “I just need to make back what I lost yesterday.” That’s exactly how accounts disappear.

The real pros do it differently. They size their trades mathematically, keeping every loss small and consistent, usually no more than 1% of their total account on any single trade.

💡 What the 1% Rule Really Means

Here’s how it works:
If you have a $10,000 account, the maximum you should lose on any trade is $100 (that’s 1% of $10,000).

That doesn’t mean you’re only investing $100. It means that even if your stop loss gets hit, the total loss on that trade shouldn’t exceed $100.

This simple rule is what keeps professional traders in the game while emotional traders keep blowing up.

⚖️ Why 1% Risk?

1️⃣ Capital Preservation

The number one goal of trading isn’t to make money fast, it’s to stay in the game.
If you lose just 1% per trade, even 10 losing trades in a row only puts you down about 9.5%. But if you lose 10% per trade, those same 10 losses would leave you down more than 65%.
That’s the difference between a bad week and total ruin.

2️⃣ Emotional Stability

When you keep your losses small, you protect your mindset.
Big losses create fear and frustration, which lead to revenge trading and impulsive decisions. Small, consistent losses keep your emotions steady so you can stick to your plan.

3️⃣ Consistency and Discipline

The 1% rule forces discipline. It turns trading into a repeatable process instead of a guessing game.
No matter how confident you are in a setup, your risk stays the same. That’s how consistency is built.

4️⃣ Easier Recovery

Small drawdowns are much easier to recover from. Lose 1%, and you only need a 1.01% gain to get it back.
Lose 50%, and you need a 100% gain just to break even.
Position sizing helps you avoid the kind of drawdowns that take months to recover from.

🧮 How to Apply It in Real Trades

Here’s the simple logic behind smart position sizing:

• 20% position of your total capital → 5% stop loss = 1% total account risk

• 10% position → 10% stop loss = 1% total account risk

• 5% position → 20% stop loss = 1% total account risk

This gives you flexibility. You can take wider stops on smaller positions or tighter stops on larger ones, but your total risk always stays fixed.

Now let’s walk through a few examples.

Example 1: Gold E-mini Futures (MGC)

You’ve got a $10,000 account and want to trade E-mini Gold (MGC). Each contract represents 10 ounces of gold, and every $1 move equals $10.

If you allocate 20% of your capital ($2,000) to this trade and risk 5% on the position, your dollar risk is $100, exactly 1% of your total account.

To find your stop size:

$100÷$10=10 points stop\$100 ÷ \$10 = 10 \text{ points stop}$100÷$10=10 points stop

So, you can set a 10-point stop on one E-mini Gold contract and stay perfectly within your 1% rule.

If you prefer a wider 20-point stop, just cut your position in half. The goal isn’t to be right on every trade, it’s to protect your capital while you find the right setups.

Example 2: Nasdaq E-mini Futures (MNQ)

Now let’s look at E-mini Nasdaq (MNQ). Each contract moves $2 per point. Let’s say your stop is 50 points, which equals $100 risk per contract.

With a $10,000 account, that’s right at your 1% limit. So, one micro Nasdaq contract with a 50-point stop keeps you perfectly sized.

If you need a 100-point stop, trade half a contract or simply skip the trade. Don’t bend the math to fit your emotions.

Example 3: EUR/USD

Now let’s take EUR/USD with a $10,000 account.

You decide to allocate 5% ($500) of your account to the position, with a 20% stop loss on that position. That’s $100 total risk, again 1% of your account.

If your stop loss is 50 pips, divide your total dollar risk ($100) by the value per pip to find your size.
At $10 per pip (standard lot), you’d risk $500 per 50-pip stop, which is too much.
At $1 per pip (mini lot), you’d risk $50 per 50 pips, half your target risk.
So, you could trade two mini lots of EUR/USD with a 50-pip stop to risk exactly $100 total.

Clean, simple, and consistent.

💬 Why This Approach Works

No matter what market you trade, the math doesn’t lie. When you position size this way, you turn risk into a constant, not a variable.

✅ You know exactly how much you can lose before you even enter the trade.
✅ You adjust your size, not your emotions.
✅ You preserve both capital and confidence through drawdowns.

The truth is, the secret to long-term trading success isn’t about finding perfect setups, it’s about surviving the inevitable losing streaks.

With a fixed 1% risk per trade, even if you lose 10 trades in a row, you’re only down 10%. That’s easy to recover from.

Position sizing is your defense system. It keeps you in the game long enough to let your edge play out.

If you risk 1% or less per trade, you’ll never blow up your account, no matter what happens next. And that’s how real traders win over time.

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