Position Sizing

Position sizing is a critical risk management technique that determines how much capital to allocate to each trade. It's based on factors including account size, risk per trade (typically 1-2%), stop loss distance, and volatility. Proper position sizing ensures no single trade can significantly damage your account. Common methods include fixed dollar risk, percentage risk, and volatility-based sizing. The Kelly Criterion provides a mathematical approach to optimal sizing. Position sizing becomes more complex with multiple positions and correlation risk. It's often considered more important than entry and exit timing for long-term success.