Position sizing concepts (a risk framework — not a formula to follow)
Education only — vocabulary and structure, not trade ideas.
Why size shows up before “edge”
A good idea in a size you cannot survive is still a bad outcome. Position sizing is the habit of choosing how large an exposure is relative to the capital (or fake practice balance) you are willing to put at risk.
This is a framework for thinking, not a plug-and-play recipe. Markets, products, and personal constraints differ.
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Three questions every size discussion returns to
- What can go wrong on this idea? (see What is risk)
- How much of my stack is tied to that failure mode?
- If I’m wrong in a normal way, does the account (or paper book) still function?
If you cannot answer those in plain language, size talk is premature.
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Risk per idea (concept)
Many educational texts describe risking a small fraction of capital on a single idea so that a streak of losses does not end the process. The exact fraction people cite varies; treating any number as universal advice is a mistake.
What to keep from the concept:
- One idea should not be your entire learning budget.
- Correlated ideas count as one risk pile (three tech names often move together).
- “I can only lose what I put in” is false for some products (options, futures, leverage, liquidation cascades) — know the product.
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Notional size vs risk size
| Term | Meaning |
|---|---|
| Notional | Gross exposure (e.g. shares × price, or contract multiplier effects) |
| Risk size | How much you expect to lose if your invalidation level hits (still uncertain in gaps) |
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Concentration is a sizing choice
Putting most of a book in one name, one sector, or one token is a size decision, whether or not you labeled it that way. See Diversification vs concentration.
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Paper practice (fake money)
On /mock/ when live:
- Try the same idea at two different sizes and journal how it feels.
- Label every screen FAKE BALANCE / NO REAL MONEY.
- Do not treat paper P&L as proof of a system.
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What this page will not give you
- No “risk 1%” mandate
- No share-count calculator pitched as advice
- No entries, stops-as-signals, or picks
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Related
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Draft → Trading CEO review → Sentry CLEAR → Forge. Education only.