Position sizing
Definition · Level 8 · Risk & portfolio
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Deciding how many shares or contracts to trade from the loss you can accept, not from conviction: units = dollar risk budget ÷ risk per unit (entry to stop), then checked against notional and concentration limits.
Example
$600 budget, entry 30.00, stop 28.50 → 400 shares.
Where Tradecraft teaches it
Level 8 · Risk & portfolio, in the lesson “Position sizing & R-multiples”: Size each trade from a fixed risk budget, put the stop where the idea fails, and score results in R.
Related terms
- 1RThe dollar amount at risk on a trade — entry-to-stop distance × size — used as the unit for measuring every result.
- Fixed-fractional riskSizing rule that risks the same percentage of current equity on every trade (e.g. 1%), so dollar risk shrinks in drawdowns and grows with the account.
- R-multipleTrade P&L divided by the initial amount risked; making three times your risk scores +3, a clean stop-out −1.
- Risk:reward ratioPlanned loss to the stop compared with planned gain to the target; 1:3 means risking $1 to try to make $3.
- Stop-lossPre-planned exit price at which the trade idea is proven wrong, usually entered as a stop order; the distance from entry sets per-share risk and…
- AlphaReturn earned above what the asset’s market exposure predicts: Rp − [Rf + β(Rm − Rf)].