Position sizing is the difference between sustainable trading and blowing up your account. It doesn’t matter how good your trade ideas are if one bad trade wipes you out. This guide teaches you the professional approach to sizing positions—and includes a calculator to do the math.
Why Position Sizing Matters
Consider two traders with identical win rates:
- Trader A: Risks 2% per trade, loses 5 in a row = down 10%
- Trader B: Risks 25% per trade, loses 5 in a row = down 76%
Same trades, same bad luck, vastly different outcomes. Trader A can recover easily. Trader B is nearly wiped out.
Position sizing is survival first, profits second.
The 1-2% Rule
Professional traders typically risk 1-2% of their portfolio on any single trade. This means if your stop loss gets hit, you lose at most 2% of your total capital.
Why 1-2%?
- Survives losing streaks (10 losses = only 18% down at 2%)
- Removes emotion from trading
- Allows for consistent decision-making
- Works across different market conditions
Risk Tolerance by Experience
| Experience Level | Risk Per Trade |
|---|---|
| Beginner | 0.5-1% |
| Intermediate | 1-2% |
| Advanced | 2-3% |
| Professional | 1-2% (they go back to conservative) |
Calculating Position Size
The formula for position sizing is:
Position Size = Risk Amount ÷ Stop Loss Distance
Where:
- Risk Amount = Portfolio × Risk Percentage
- Stop Loss Distance = (Entry Price – Stop Loss) ÷ Entry Price
Example Calculation
Setup:
- Portfolio: $10,000
- Risk per trade: 2%
- Entry price: $100
- Stop loss: $90
Calculation:
- Risk amount: $10,000 × 2% = $200
- Stop loss distance: ($100 – $90) ÷ $100 = 10%
- Position size: $200 ÷ 10% = $2,000
You can buy $2,000 worth of this token. If it drops 10% to your stop loss, you lose $200 (2% of portfolio).
Position Size Calculator
Use our calculator to determine your optimal position size based on your risk tolerance.
Position Size Calculator
Calculate optimal position size based on your risk tolerance.
Stop Loss Strategies in DeFi
Unlike traditional markets, DeFi doesn’t have automatic stop losses on most DEXs. Here’s how to handle this:
1. Mental Stops
- Set a price level where you’ll manually exit
- Requires discipline and monitoring
- Risk: You might not be watching when it triggers
2. Limit Orders on DEXs
- Some DEXs (like dYdX, GMX) offer stop orders
- Set and forget—executes automatically
- May have slippage in volatile conditions
3. DeFi Stop-Loss Protocols
- Services like Gelato, Autonomy Network
- Automated execution based on price conditions
- Additional smart contract risk
4. Position Sizing as Risk Management
- If you can’t use stops, size smaller
- Only invest what you can afford to go to zero
- Especially important for small-cap tokens
Portfolio Allocation Guidelines
Beyond individual trade sizing, consider overall portfolio allocation:
Risk Tiers
| Category | Allocation | Examples |
|---|---|---|
| Core Holdings | 50-70% | ETH, BTC, major stables |
| Blue Chip DeFi | 20-30% | UNI, AAVE, MKR |
| Mid-Risk | 10-15% | Newer protocols, L2 tokens |
| High Risk/Speculation | 5-10% | New launches, memes |
The 5% Rule for Speculation
Never put more than 5% of your portfolio into any single speculative bet. This way, even a 100% loss is survivable (and expected sometimes in high-risk plays).
Common Position Sizing Mistakes
1. Sizing Based on Conviction
“I’m SO sure about this trade, I’ll put 50% in.”
Problem: Your conviction has no correlation with outcome. The market doesn’t care how sure you are.
2. Averaging Down Without a Plan
“It dropped, so I’ll buy more to lower my average.”
Problem: You’re increasing risk on a losing position. Only average down if it was part of your original plan.
3. All-In Mentality
“This is the opportunity of a lifetime!”
Problem: There’s always another opportunity. Going all-in means one bad trade ends your trading career.
4. Ignoring Correlation
“I’m diversified—I own 10 different DeFi tokens.”
Problem: If they’re all correlated (move together), you’re not really diversified. In a crash, they all drop together.
Advanced: Kelly Criterion
For more sophisticated position sizing, some traders use the Kelly Criterion:
Kelly % = (Win% × Avg Win) – (Loss% × Avg Loss) / Avg Win
Most traders use “Half Kelly” (divide result by 2) because:
- Full Kelly is too aggressive for most
- Estimates of win rate and win size are uncertain
- Reduces volatility while still growing capital
Key Takeaways
- Risk 1-2% per trade maximum — This is non-negotiable for longevity
- Position size = Risk Amount ÷ Stop Loss Distance
- Tighter stop loss = larger position; wider stop = smaller position
- In DeFi without stops, size even more conservatively
- Keep speculative plays to 5% of portfolio max
- Your conviction doesn’t matter—math does
- Use the calculator above for every trade
Remember: The goal isn’t to make the most money on winning trades. It’s to still be trading next year.