Position Sizing: Turning 1R into a Concrete Position Size

In risk-reward,
we defined 1R (max loss per trade).

Account: 10,000 USD
Max loss per trade: 1% of account

1R = 100 USD

In this article, we’ll turn that 1R into:

“So how many units should I actually buy or sell?”

—in other words,
a concrete position size.

1. Why position size matters so much

Consider two traders with:

the same 10,000 USD account,
similar entries and stop placements.

But:

Trader A risks 1% of the account per trade (1R),
Trader B risks 5% per trade.

Even with the same strategy:

B can lose 20%+ of the account
after just 4–5 losing trades in a row,
while A can stay in the game much longer.

So even with the same setup:

Position size is often
the main difference between surviving and blowing up.

That’s why professional traders don’t decide size by feel:

Instead they use a routine:
“Given my 1R (max loss), and the distance to my stop,
what position size fits inside that?”

2. The basic pieces: account, 1R, stop distance

Position sizing uses three main inputs:

Account size
- The capital you’re trading with (e.g., 10,000 USD).
Risk per trade (Risk %)
- e.g. 1%, 0.5%, etc.
- This is 1R from risk-reward.
Price distance between entry and stop
- For a long: entry price − stop price
- For a short: stop price − entry price
- Think of it as a positive number for easier math.

From these, the core formula is:

Position size = (Account × Risk %) ÷ (Stop distance)

Let’s start with a spot (non-leveraged) example.

3. Spot example: calculating position size

Example setup:

Account: 10,000 USD
Risk per trade: 1% (→ 1R = 100 USD)
Instrument: BTC
Long entry: 20,000 USD
Stop: 19,800 USD

3-1. Stop distance

For a long:

Stop distance = entry − stop

So:

20,000 − 19,800 = 200 USD

Holding 1 BTC:

if price hits the stop,
you lose 200 USD.

3-2. Position size

We only want to lose 1R = 100 USD if stopped out.

Position size = (Allowed loss) ÷ (Loss per 1 BTC)

Allowed loss = 100 USD
Loss per 1 BTC = 200 USD

→ Position size = 100 ÷ 200 = 0.5 BTC

This way:

Stop hit → loss = 200 × 0.5 = 100 USD = −1R
Targets can then be set at +2R, +3R, etc.,
as in risk-reward.

4. Position sizing with leverage and futures

Leverage in futures and margin trading
often creates confusion.

The key idea is simple:

Leverage can reduce the margin required,
but it does not change your 1R
(your allowed loss per trade).

In the example above, for 0.5 BTC:

Required margin depends on leverage,
but the stop still means
200 USD × 0.5 = 100 USD loss.

So:

Calculate position size exactly the same way,
ignoring leverage at first.
Then think of leverage only as:
- “How much margin do I need
  to hold this position size?”

Leverage is not a tool to make positions bigger;
it’s a tool to hold the same size
with less locked-up capital.

(Leverage risk itself will be revisited in
max-loss
and drawdown.)

5. Same formula across markets and currencies

Crypto, FX, stocks, different quote currencies—
the numbers change, but the structure does not.

Define 1R (allowed loss) from your account.
For the instrument you’re trading, compute:
- entry price,
- stop price,
- and any needed FX conversion,
- to get loss per 1 unit.
Then:

Position size = 1R ÷ loss per 1 unit

In atr-sizing
we’ll replace “stop distance”
with an ATR-based risk measure
for more automated sizing,
but the core logic stays the same.

6. Common position sizing mistakes

6-1. Choosing size first, then forcing a stop

Very common pattern:

“I’ll just trade 1 BTC this time,”
“I usually trade 0.1 BTC,
so I’ll do that again.”

Here, you fix the size first,
and only later think about the stop.

Then:

if the stop is wide,
your account risk in R becomes larger,
and your 1R rule
from risk-reward
quietly breaks.

A healthier habit is:

Decide 1R from account

Choose entry and stop based on the chart

Let the math decide size

6-2. Moving the stop to fit a desired size

The opposite mistake:

“I really want to hold 0.5 BTC,”
“If I reduce size,
profits will look too small.”

So you:

push the stop closer to the entry
(too tight), or
drop the stop altogether.

This breaks:

the structural logic from
s-r and
swing-vs-correction,
and leads to a pattern of
“sometimes I survive,
but when I don’t, I lose big.”

6-3. Not updating risk when the account changes

As your account grows or shrinks:

your 1R in dollars should change too.

Example:

10,000 USD account, 1% = 100 USD
15,000 USD account, 1% = 150 USD

Some traders keep using the same dollar amount
they started with and slowly drift away
from their stated risk rules.

It helps to regularly recalc:

“With my current balance,
1R = x% of account = Y USD,”

and then size positions from that.

7. A quick practice exercise

To make this more concrete,
you can try two small tasks.

Calculate your current 1R
- “What % of my account
  am I truly willing to risk per trade?”
- Multiply that by your current balance
  and write down 1R
  as a number in your account currency.
Apply the sizing formula to a recent or sample trade

For example:
- Account: 10,000 USD
- 1R: 1% = 100 USD
- BTC long, entry 20,000, stop 19,800
- Stop distance: 200
- Position size: 100 ÷ 200 = 0.5 BTC
Do the same for other coins
and different stop distances
to build intuition.

In short, position sizing is:

taking account-based 1R
and reverse-engineering
how many units you can trade
within that limit.

If you:

set your R framework with
risk-reward,
define your stop and exit plan from
stop-loss,
and then let this article’s math
decide your size,

you’ll get much more consistent risk control,
even if your chart patterns and strategies stay the same.

In atr-sizing,
we’ll build on this and use ATR
to adjust position size in a more dynamic way.