Position Sizing
Position sizing is how much you allocate to a trade, based on bankroll, edge, uncertainty, and costs.
Definition
Position sizing is the process of choosing trade size. It depends on your bankroll, your estimated edge, uncertainty, and costs.
Why it matters
Good sizing reduces volatility and lowers risk of ruin. Bad sizing can destroy results even if your probabilities are decent. Sizing mistakes are often driven by overconfidence.
Cost awareness
• Small edges are fragile after trading fee and effective spread.
• In thin markets, execution risk increases with size.
Common pitfalls
Sizing off mid when you pay ask: Crossing the spread reduces true edge.
Ignoring correlation: Many small positions can behave like one big bet.