1. Define the setup and invalidation
Write the market context and the exact price or condition that proves the idea wrong. Position sizing cannot rescue an undefined setup.
2. Measure the logical stop distance
Measure from planned entry to invalidation and include realistic room for market movement. Do not squeeze the stop to obtain a preferred lot size.
3. Set the maximum accepted loss
Choose the maximum account amount your written plan permits for this idea. Reduce it when liquidity, volatility or execution quality is uncertain.
4. Apply the position-size formula
Divide maximum accepted loss by the monetary loss per unit at the stop. Then account for instrument value, contract size, spread, commission and slippage.
5. Check combined exposure
Review open trades sharing a currency, index, sector or directional driver. Several small positions can create one concentrated risk.
6. Recalculate after any change
If entry or stop changes, recalculate size before execution. Never widen the stop after entry simply to avoid realizing the planned loss.
7. Review planned versus actual risk
Record intended size, actual fill, fees, slippage and whether the invalidation rule was respected. Correct repeated process errors before increasing size.
Use the tools, then inspect the connected process
Use the free position size calculator after defining invalidation and maximum loss. Stress-test the percentage rule with the risk-per-trade calculator, then save the decision in the trading plan builder.
Trading Master connects position sizing with market structure, technical analysis, psychology, execution and review. It is an English, self-paced education e-book—not a signal service, individualized advice or a promise of results.