Position sizing: risk first, conviction second

Almost every blown account traces back to the same sentence: "I was sure about this one." Conviction is not a position size. Risk is.

The formula

You pick two things before you click buy: the price where you are wrong (your stop), and the percentage of your account you are willing to lose if that happens. Everything else — how many shares, how much money — is arithmetic.

A worked example

• Account: $25,000 · risk per trade: 1% = $250
• Entry: $50.00 · Stop: $47.00 → risk per share = $3.00
• Shares = 250 ÷ 3 = 83 shares ($4,150 position)

Now the same idea with a tighter stop at $49.00: risk per share is $1.00, so you can hold 250 shares — a 3× bigger position, for exactly the same risk. That is the whole point: the distance to your stop sets the size.

The mistake that costs the most

Most people do it backwards. They decide "I'll buy 500 shares", and then place the stop wherever 500 shares feels tolerable — often far too wide. That inverts the logic: your risk becomes an output of position size instead of an input.

Three rules that follow

• Never widen a stop to keep a size. If the size is too big for the stop, the size is wrong.
• Keep risk per trade constant. 0.5–1% is a common band. Consistency is what makes a win rate meaningful.
• Count total open risk. Three positions at 1% each is a 3% day if they all fail.

Run your own numbers: position size & risk/reward · then set your limits in the risk manager.