Position Sizing for Momentum Trades: Protect Your Capital While Catching Moves
Learn how to calculate the right position size for each trade based on your risk tolerance, stop loss distance, and account size. The math that keeps you in the game.
The One Rule That Separates Gamblers from Traders
Here's a question most retail traders never ask: "How much of my account should this trade risk?"
They think about entry. They think about price target. They might even set a stop loss. But position size? That's usually "whatever fits" or "what feels right." And that's why most traders blow up.
The math is simple: If you risk 10% per trade and lose 5 times in a row (which happens), you've lost 41% of your account. If you risk 2% per trade and lose 5 times, you've lost 9.6%. One of these traders survives. One doesn't.
The Position Sizing Formula
There's one formula you need to memorize:
Position Size = (Account Risk ÷ Trade Risk) × Account Value
A Real Example
You have a $10,000 account. You spot AAPL at $180 with a Ripeness Score of 72. You want to enter with a stop at $171 (5% below entry).
Account Risk: 2% of $10,000 = $200
Trade Risk: 5% (distance to stop loss)
Position Size: $200 ÷ 0.05 = $4,000 worth of AAPL (22 shares)
Position Sizing and Ripeness Scores
Score 60-70: Consider 1% account risk (lower conviction)
Score 70-80: Standard 1.5-2% account risk
Score 80+: Up to 2.5% for high-conviction setups
The Bottom Line
Position sizing isn't sexy. Nobody brags about it on social media. But it's the difference between traders who last years and traders who last months. Master this before you trade another dollar.
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