Position Sizing

The process of determining how many shares or contracts to trade on any given setup, based on account size, risk tolerance, and the distance to a stop-loss level. Many professional traders consider position sizing the single most important factor in long-term survival, more critical than entry signals or win rate. Common approaches include risking a fixed percentage of capital per trade (often 1-2%), the Kelly Criterion, and volatility-based sizing using the Average True Range.