Position sizing determines how much of your portfolio you put into a single trade. It's arguably the most important risk management decision. Even a great strategy fails if positions are sized too large.
Risk no more than 1-2% of your total portfolio on any single trade.
Example: $10,000 portfolio. Max risk = $100-200 per trade.
If you buy AAPL at $300 with a stop-loss at $290 ($10 risk per share),
you can buy 10-20 shares -- not more.
This ensures a string of 10 losses only costs you 10-20%, not everything.
Not all ideas are equal. Size positions by confidence:
High conviction (multiple signals aligned): up to 2% risk.
Medium conviction (1-2 signals): 1% risk.
Low conviction / speculative: 0.5% risk.
Never put more than 10-15% of your portfolio in one stock.
Earnings can gap a stock 15-25% overnight. Consider cutting position size by 50% before earnings unless you've specifically analyzed the setup. The few extra percent of gain is rarely worth the tail risk.
Related: Stop Loss Orders • Diversification • Risk/Reward Ratio