Position sizing (risk per trade)

The core formula is: position size = (account size × risk %) ÷ stop-loss distance %. A wider stop-loss means a smaller position for the same dollar risk; a tighter stop-loss allows a larger position for that same dollar risk.

For example, a $10,000 account risking 1% per trade ($100 maximum loss) with a stop-loss set 5% away from entry can size the position at $100 ÷ 5% = $2,000 — if price moves the full 5% against the position, the loss is $2,000 × 5% = $100, matching the intended risk exactly.

A common mistake is sizing every trade the same dollar amount regardless of how far the stop-loss sits. A trade with a stop twice as far away silently risks twice as much money for the same position size, even though nothing about the 'risk %' decision changed.