Position sizing

Anti-martingale

Increasing size after wins and decreasing it after losses, the structure behind almost every survivable sizing rule.

ATR position sizing

Using a multiple of average true range as the stop distance, so size adapts to each instrument's volatility.

Averaging down

Adding to a losing position to improve the average price, which increases risk on the trade you are currently wrong about.

Closed versus open equity

The difference between realised account value and the value including unrealised profit and loss, which is the base every sizing rule must pick.

Compounding position size

Letting risk per trade grow with equity, which turns a linear edge into geometric growth and a linear edge into geometric decay.

Conviction sizing

Varying position size by how strong the setup is, usually within a capped range like half to double a standard unit.

Dollar risk

The actual currency amount you lose if a trade goes straight to your stop, before slippage.

Drawdown throttle

A rule that cuts position size as drawdown deepens and restores it as equity recovers, making losing runs mathematically survivable.

Equal dollar weighting

Allocating the same notional amount to each position, which equalises capital but not risk.

Equal risk weighting

Sizing each position so every holding contributes a similar amount of expected loss or volatility.

Fixed fractional sizing

Risking the same percentage of current equity on every trade, so size grows with wins and shrinks with losses.

Fixed lot sizing

Trading the same share or contract count every time regardless of account size or volatility.

Fixed ratio sizing

Adding one unit of size for every fixed increment of profit, instead of scaling by a percentage of equity.

Fractional Kelly

Betting a fixed fraction of the full Kelly stake - typically a quarter to a half - to cut volatility at a small cost in growth.

Half Kelly

The common compromise of betting 50% of the Kelly-optimal stake, keeping most of the growth with far less drawdown.

Inverse volatility weighting

Allocating capital in proportion to one divided by each asset's volatility, so calmer instruments get more money and each contributes similar risk.

Martingale

Doubling size after each loss to recover with one win; mathematically guaranteed to blow up an account with finite capital.

Minimum position size

The smallest tradeable quantity, which can force risk above your rule or make the trade impossible.

Notional sizing

Choosing a position by the face value it controls rather than by the loss it can cause.

Optimal f

Ralph Vince's sizing fraction that maximises geometric growth using the largest historical loss as the scaling unit.

Percent volatility sizing

Sizing so that a typical daily move in the instrument, not a chart stop, costs a fixed percentage of equity.

Position size rounding

Always rounding the calculated quantity down, so rounding error reduces risk instead of adding to it.

Pyramiding

Adding to a winning position in decreasing increments while raising the stop, so total open risk stays capped.

Risk normalisation

Expressing every trade in common risk units so results from different instruments and account sizes can be compared.

Scaling in

Building a position in planned tranches rather than all at once, to average the entry or wait for confirmation.

Share sizing formula

Position size equals dollar risk divided by stop distance, adjusted for contract multipliers.

Sizing drift

The slow, unplanned growth of position size that happens when sizing rules are not recalculated.

Sizing on closed equity

Basing position size on realised account value, ignoring unrealised profit in open trades.

Sizing on open equity

Basing position size on account value including unrealised profit and loss, which compounds faster in both directions.

Stop distance

The gap between your entry price and your stop price, expressed per share, contract or pip.

Unit sizing

Treating one standard risk amount as a single unit so trades, pyramids and limits can be counted rather than calculated.

Volatility stop

A stop placed a multiple of recent volatility away from entry, so the distance adapts to how much the instrument normally moves.

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