Position Sizing for Swing Trades

In This Lesson

Calculating the right position size for your account.

Duration: 25 min

Overview

Calculating the right position size for your account. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

The 1% Rule

Never risk more than 1% of account on a single trade. Professionals often risk 0.5% or less.

Risk/Reward Calculation

Position size depends on distance to stop loss and acceptable dollar risk.

Kelly Criterion

Mathematical formula for optimal position sizing based on win rate and average win/loss.

Correlation Risk

Multiple positions in correlated assets multiplies risk. Tech stocks often move together.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Calculate 1% of your account - this is maximum risk per trade
2. Determine stop loss distance from entry as a percentage
3. Divide dollar risk by percentage risk to get position size
4. Check correlation with existing positions - reduce if overlapping
5. Use position size calculator or spreadsheet to automate
6. Review position sizes weekly - adjust as account grows/shrinks

Common Mistakes to Avoid

Betting Too Much Per Trade

Risking 10-20% per trade guarantees account destruction. Even great traders have losing streaks.

Fixed Dollar Amounts

Using the same position size regardless of setup quality or market conditions reduces profitability.

Ignoring Volatility

Same position size in Tesla (5% daily moves) and Coca-Cola (1% moves) creates inconsistent risk.

Key Takeaways

Position sizing determines survival - poor sizing kills accounts faster than bad trades
The 1% rule keeps you in the game through inevitable losing streaks
Volatility-adjusted sizing creates consistent risk across different assets
Never increase position size when losing - revenge trading destroys accounts
Professional trading is about surviving first, profiting second

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready