Size does matter. But not how you think it does.
Most beginners obsess over entries. Perfect indicators. Perfect patterns. Perfect timing. Yet they completely ignore the one thing that decides if they survive long enough to get good: position sizing.
You can have an average strategy and still make money with good sizing. You can also have a great strategy and blow up with bad sizing. This is a key aspect to understand.
In this guide, we break down position sizing for beginners. No math degree required. No fancy jargon. Just practical frameworks you can actually use.
This builds directly on our trading fundamentals series and ties together risk management, psychology, and execution.
This is part 21 of a series of trading guides
What is position sizing
Position sizing is simple.
It is how big your trade is relative to your account. Not how confident you feel. Not how “good” the setup looks. Not how much you want to make back.
It answers one question: how much should I risk on this trade?
Two traders can take the exact same trade and get completely different results. The difference is almost always position sizing.
Why position sizing matters more than entries
Here is an uncomfortable truth.
Most trading strategies have a similar win rate over time. What separates profitable traders from losers is not prediction. It is survival.
Position sizing controls how fast you grow, how fast you lose, how emotionally stable you stay, and how long you stay in the game.
Bad sizing leads to overtrading, revenge trading, account wipeouts, and mental breakdowns.
Good sizing leads to consistency, confidence, smaller drawdowns, and compounding.
Position sizing is the bridge between strategy and long-term profitability.
The three main position sizing models
There are many sizing models, but beginners only need to understand three.
- Fixed fractional sizing.
- Kelly criterion.
- Volatility-based sizing.
Let’s break them down one by one.
1] Fixed fractional position sizing (the beginner favorite)
This is the simplest and safest place to start.
With fixed fractional sizing, you risk a fixed percentage of your account on every trade.
Common examples are risking 0.5 percent, 1 percent, or 2 percent per trade.
Example: if your account is $10,000 and you risk 1 percent per trade, your maximum loss per trade is $100.
If your stop loss is 2 percent away, you adjust position size so that a stop-out equals $100.
Why beginners should start here is simple. It is easy to understand. It prevents emotional over-sizing. It protects your account during losing streaks. It scales automatically as your account grows or shrinks.
Most professional traders still use a version of this.
The biggest mistake beginners make is changing the percentage based on emotions. “This setup looks amazing, I’ll risk more.” Or, “I just lost three trades, I’ll go smaller.”
That defeats the entire purpose. Consistency is the edge here.
This doesn’t mean your position is only $100. If you use leverage up to 100x, your $100 risk can be a $10,000 trade position. Although I would advise avoiding leverage until you improve your technical trading skills.
I use this sizing strategy when I trade perps. I am very strict on risking a maximum 1% per trade.
2] Kelly criterion (powerful but dangerous if misunderstood)
What is the Kelly criterion
The Kelly criterion is a mathematical formula used to decide how much of your account to risk on a single trade in order to maximize long-term growth.
Instead of picking a fixed percentage, the Kelly criterion uses three inputs:
- Your win rate
- Your average win
- Your average loss
Based on these numbers, it calculates the “optimal” position size that should, in theory, grow your account the fastest over many trades.
In simple terms, the Kelly criterion answers this question:
Given how often I win and how much I win or lose, how big should I bet?
A simplified way to think about it
Imagine you flip a coin.
If you win 60 percent of the time and win the same amount you lose, the Kelly criterion would tell you to bet a certain percentage of your bankroll on each flip.
If your win rate drops or your losses are bigger than your wins, the recommended bet size goes down.
If your edge improves, the recommended size goes up.
The better your edge, the bigger the bet.
The weaker your edge, the smaller the bet.
That is the core idea behind Kelly.
Why it sounds great on paper
The Kelly criterion is attractive because it:
Maximizes long-term account growth
Adjusts size based on edge
Is grounded in math, not feelings
In a perfect world with stable probabilities, it works very well.
Why it’s dangerous in real trading
The problem is that trading is not a coin flip.
Your win rate changes.
Market conditions change.
Your emotions change.
Your data is never perfect.
The Kelly formula assumes you know your exact edge. In real markets, you don’t.
Because of that, full Kelly sizing often leads to extreme drawdowns and wild swings in account balance.
That is why most professional traders never use full Kelly.
How traders actually use Kelly
Instead of using the full Kelly number, traders often use:
Half Kelly
Quarter Kelly
This reduces drawdowns while still keeping some of the growth benefits.
Many traders also use Kelly as a reference tool, not a strict rule. It helps them understand whether their current risk is too aggressive or too conservative.
Beginner takeaway
The Kelly criterion is not a magic formula.
It is a way to think about how edge and position size are connected.
For beginners, the safest approach is still fixed fractional risk. Learn consistency first. Once you have a proven edge and solid data, Kelly can be used as an advanced sizing guide.
I use the Kelly strategy when I spot buy altcoins for a swing trade. Some coins with less confidence I size smaller, while a coin I’m highly confident in (like $HYPE) I will size bigger.
3] Volatility-based position sizing
Volatility-based sizing adjusts your position size based on how volatile the market is.
More volatility means smaller size. Less volatility means larger size.
This is often done using indicators like Average True Range or historical volatility.
If Bitcoin is moving 2 percent per day, you can size larger. If it is moving 8 percent per day, you size down.
This works well because markets are not always the same. Risk changes over time, and volatility regimes shift constantly.
Beginners often struggle with this method because it requires more calculations and discipline. But once understood, it pairs extremely well with fixed fractional risk.
I use this strategy to manage my risk of spot Bitcoin and Ethereum holdings. My exposure to the market depends highly on where we are in the cycle (and thus, volatility).
How position sizing transforms profitability
This is where everything clicks.
Two traders use the same strategy, same entries, and same exits. One risks 5 percent per trade. The other risks 1 percent per trade.
After a losing streak, the first trader is emotionally destroyed. The second trader is annoyed but still thinking clearly.
After a winning streak, the first trader often gives it all back. The second trader compounds steadily.
Position sizing smooths your equity curve. Smooth equity curves keep traders alive.
Most blown accounts are not caused by bad trades. They are caused by too much size.
Position sizing and psychology
Sizing directly affects your emotions.
If your size is too big, you panic, move stops, exit early, and revenge trade.
If your size is too small, you get bored, overtrade, and ignore your plan.
Good position sizing feels boring. That is a good sign.
If every trade feels exciting, your size is probably too big.
A simple beginner framework
If you want a clean starting point, use this.
- Risk 0.5 to 1 percent per trade.
- Always define your stop loss first.
- Size your position based on that stop.
- Never adjust risk based on confidence.
- Track results over at least 50 trades.
Once you are consistent, you can experiment with volatility adjustments or fractional Kelly.
But earn complexity. Do not jump into it.
Common position sizing mistakes
- Risking more after losses.
- Risking more after wins.
- Ignoring stop losses.
- Sizing based on feelings.
- Changing rules mid-trade.
All of these destroy long-term results.
Position sizing is not exciting. But it works.
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Final thoughts on position sizing
Most traders fail not because they are wrong. They fail because they are too big.
Position sizing keeps you in the game long enough to learn. It protects you from yourself. And it quietly does the heavy lifting behind every profitable strategy.
If you remember one thing from this guide, remember this.
You do not need better entries. You need better sizing.
Once you fix that, everything else becomes easier.
If you enjoyed this blog, check out our blog on signs you’ve been in crypto too long.
As always, don’t forget to claim your bonus below on Bybit. See you next time!
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