One of the critical decisions a trader has to make multiple times daily is position sizing…

I bet that most of you have at times found yourself thinking, “Snap, I should’ve been bigger” when a trade is working your way… 

And “Damn, why am I so big in it?” when it doesn’t!

Look, as with most things trading, there’s no one golden method you can follow when it comes to picking your size. 

But, having a broad set of rules to follow may significantly improve your durability and longevity.

Here are a few considerations when determining whether you have too much or not enough:

Start With Your Account

I often say: “If you’re losing your sleep, you’re doing it wrong.”

Your trading decisions are only as good as your ability to think them through. 

But you should never be in a position where every tick starts to bother you – your mind becomes irrational and so do your entries and exits. 

You have to size in such a way where you won’t care about potential account fluctuations. 

A lot of experienced traders I know have a rule of thumb to never draw down more than 1% of their account in a day, ideally a lot less than that. 

With smaller accounts, you may be able to expand the number a bit, but make sure that your total daily stop loss won’t give you chills if it gets hit!

Speaking of daily stops…

Size Against Daily Stop

Daily stop is exactly what it sounds – a pre-set amount you’re willing to draw down on any given day. 

It’s something I like to have and, more importantly, to follow!

Obviously, there will be times when exceptional circumstances may force you to draw down more than intended, but it is your job to keep those to a minimum. 

Overall, observing a daily stop will definitely make your trading more systematic and disciplined. 

The arithmetic principles are quite simple: let’s say based on your account size, you’ve decided you’re able to draw down $100 on any given day.

I never want to bet it all on one trade!

What if you have to exit and re-enter?

What if a better setup pops up some 5 minutes later?

Based on your strategy, you want to split your total daily stop into 2-5-10 pieces and size accordingly against that. 

More active traders will probably want to have more re-entry opportunities and split the stop into more pieces. 

If you’re a sniper aiming for rare “perfect” trades, you can risk more in each entry. 

But be mindful of your objective and respect your daily limit. 

Calculate Trade Risk

Now that you know your max daily risk and your max per trade risk, we come to the part that seems very obvious on paper, but is often hard to follow in the heat of the moment: 

Let’s say you’re willing to lose $100 on any given day, and $20 in one entry. 

You see a good setup, your risk/reward is favorable and your stop is 20c away from the current price. 

How much would I buy? That’s easy, 100 shares – such size will allow you to stay within your risk parameters should worst come to worst. 

The tough part? You still need to stick to the rules, nobody will do it for you. 

One simple way to facilitate that is to…

Size In / Size Out

Look, who said you have to buy or sell all at once?

In fact, it’s a really good practice to be adding to/trimming your position as the trade develops.

Let’s go back to $20 and 100 share from above: you can get it all at once and sit on your hands for a binary work/doesn’t work outcome. 

Or, you can buy 30 shares, add another 30 on a dip and get up to max size of 100 once the stock starts working. 

This way, you might’ve just avoided getting stopped out, gotten a better average and still allowed the trade to fully play out!

Look, there’s a learning curve to each part of a trader’s process. 

But from my experience being more systemic does a lot more good than bad.