Published 2026-10-14
Position sizing
Position sizing decides how much capital goes into each trade. It often matters more to the outcome than the entry rule — and it is the part most claims skip.
What it is
Position sizing decides how much capital goes into each trade.
It answers a different question from “should I trade this?” — namely, “how much?”
Why it dominates the outcome
Two strategies with the same entries can produce very different results depending on sizing.
| Sizing approach | Effect |
|---|---|
| Fixed fraction | Simple, bounded — risk per trade is predictable |
| All-in | A single bad trade ends the strategy |
| Volatility-scaled | Sizes down in choppy markets, up in calm ones |
| Martingale-style | Doubles after losses — a classic path to ruin |
Sizing is where a survivable strategy and an unsurvivable one diverge, even with identical signals.
How to check
Ask what the sizing rule is, and what the worst-case drawdown is under that sizing. A backtest that reports returns without stating its sizing is hiding half the strategy.