What's the most important variable in your trading? It's not the indicator you use, not your entry timing, not your ability to read charts. It's how much you risk on each trade. Two traders can have the same strategy and opposite results solely because one scales position size correctly and the other doesn't. This article gives you the rule.
The 1% rule
The universal position sizing rule: never risk more than 1-2% of your capital on a single trade.
"Risking" doesn't mean "investing". It means the amount you'll lose if your stop loss is hit. If you have $10,000 capital and risk 1% per trade, your maximum loss per trade is $100 — regardless of coin price or position size.
Why 1% and not more?
With 1% risk per trade, even a sequence of 10 consecutive losses (very unlikely if your strategy is sound) causes roughly 9.6% capital loss. You're still alive, mentally and financially, to keep trading.
With 5% risk per trade, the same sequence causes roughly 40% capital loss. You're bust. You'll panic-change strategy, take stupid risks to "recover", and end at zero.
The difference between these outcomes is not strategy quality. It's sizing.
Why not less than 1%?
You might be tempted to risk 0.2% to be "super safe". Problem: with gains that small, your fees and slippage eat a big proportion of the result, and you never progress fast enough to stay motivated. 0.5-2% is the right window for most traders.
The formula
To calculate position size based on your risk:
Size = (Capital × Risk %) / (Distance to stop in %)
Concrete example:
- Capital: $10,000
- Risk per trade: 1% = $100
- Entry: $2,000 (ETH)
- Stop: $1,950 ($50 distance, or 2.5%)
- Maximum size: 100 / 0.025 = $4,000, or 2 ETH.
Verification: if stop is hit, you lose 2 × $50 = $100. ✓
Variant with stop in dollars
An equivalent formula, sometimes simpler to use:
Units = Risk in $ / Distance to stop in $
Same example: 100 / 50 = 2 ETH.
Adjust for volatility
Not all pairs have the same volatility. Adjusting your stop to volatility (via ATR) is part of the process:
- BTC, 4h ATR = $800, stop at 2 × ATR = $1,600 below entry.
- SOL, 4h ATR = $3, stop at 2 × ATR = $6 below.
Your size formula integrates these distances automatically. Result: whatever coin, you risk the same $100 if stop is hit.
This is absolutely crucial. Without this rebalancing, you'd take mismatched position sizes: big position on volatile coin, small on stable → massive loss when the volatile one corrects.
Adjust for setup quality
With experience, you learn to distinguish an excellent setup from a mediocre one. You can modulate your risk:
- Very high-confluence setup (6+ signals, confirmed trend, major level) → 1.5-2% risk.
- Standard setup (3-4 signals, coherent context) → 1% risk.
- Mediocre setup (2-3 signals, fuzzy context) → 0.5% or no trade.
This modulation is optional and requires discipline to not abuse "oh this is a perfect setup" every time. If you're unsure, stick to 1% fixed and you'll do fine.
Common pitfalls
Pitfall #1: thinking in entry percentage instead of capital percentage
The most common error: "I take 50% of my capital on this trade, with a 5% stop". Calculation: 50% × 5% = 2.5% capital loss if stopped. That's not 1%, that's 2.5 times more.
Always think in percentage of capital lost, not percentage of capital deployed. Position size is a consequence of risk calculation, never an arbitrary choice.
Pitfall #2: forgetting leverage
In crypto, leverage changes everything. A 5x levered position with "1%" capital deployed can easily lose 5% if stop is hit. Always calculate your risk after leverage: it's total exposure that matters, not collateral.
Pitfall #3: mentally adjusting the stop
You enter with a 2% stop, market goes against you 1.5%, you "give a little room" and move the stop to 3%. Result: your real risk was 3%, not 2%. You cheated the formula. Never do this.
Pitfall #4: concentrating risk
Taking 5 positions at once at 1% each → total exposure 5%. If they're all correlated (5 alts in a falling market), they can all exit together. Monitor your total exposure, not just per-trade exposure. A reasonable rule: max 3-5% total exposure at any given time.
Pitfall #5: increasing after a loss to "recover"
After a loss, your natural instinct is to want to catch up "right away" by increasing next trade size. This is revenge trading — and it's the number one cause of account bankruptcy in crypto. Your strategy hasn't changed between trades. Your sizing shouldn't either. Ever.
See Trader psychology for concrete counter-measures.
In DYOR
DYOR offers an integrated position sizer. You input:
- Your total capital;
- Your desired risk percentage;
- Your entry price and stop price.
And it automatically calculates maximum position size. Use it systematically — even 10 seconds to calculate saves you the human error that costs big.
The bottom line
Position sizing is what makes you survive long enough to learn and improve. A bad strategy with good sizing makes you lose slowly and leaves time to understand and adjust. A good strategy with bad sizing destroys you before you profit from it.
Even simpler: sizing is your trading life insurance. Don't skip the time calibrating it.
To go further
- Stop loss and take profit — the direct complement to position sizing;
- Crypto portfolio — extend sizing logic to all your positions;
- ATR — the technical measure that lets you calibrate stops and thus sizing.