## Introduction

*trading system*. The purpose of this system is to manage risk, but equally importantly, to help eliminate unnecessary decisions. This way, when the time comes, your trading system wonât allow you to make hasty and impulsive decisions.

When youâre establishing these systems, youâll need to consider a few things. Whatâs your investment horizon? Whatâs your risk tolerance? How much capital can you risk? We could think of many others, but in this article, weâll focus on one specific aspect â how to size your positions for individual trades.

To do that, first, weâll need to determine how big your trading account is, and how much of it youâre willing to risk on a single trade.

## How to determine account size

*available capital*that you can allocate to a particular trading strategy.

## How to determine account risk

The second step is determining your account risk. This involves deciding what percentage of your available capital youâre willing to risk on a single trade.Â

### The 2% rule

**1% rule**instead.

## How to determine trade riskÂ

So far, weâve determined our account size and account risk. So, how do we determine the position sizing for a single trade?

**where our trade idea is invalidated**.

*âour initial idea was wrong, and we should get out of this position to mitigate further lossesâ*. On a more practical level, this just means where we place our stop-loss order.

There isnât a one-size-fits-all approach to determining your stop-loss. Youâll have to decide for yourself what strategy suits your style the best and determine the invalidation point based on that.

**Looking to get started with cryptocurrency? Buy Bitcoin on Binance!**

## How to calculate position size

So, now, we have all the ingredients we need to calculate position size. Letâs say we have a $5000 account. Weâve established that weâre not risking more than 1% on a single trade. This means that we canât lose more than $50 on a single trade.

Letâs say weâve done our analysis of the market and have determined that our trade idea is invalidated 5% from our initial entry. In effect, when the market goes against us by 5%, we exit the trade and take the $50 loss. In other words, 5% of our position should be 1% of our account.Â

**Account size**â $5000**Account risk**â 1%**Invalidation point**(distance to stop-loss) â 5%

The formula to calculate position size is as follows:

`position size = account size x account risk / invalidation point`

`position size = $5000 x 0.01 / 0.05`

`$1000 = $5000 x 0.01 / 0.05`

To illustrate how this works, letâs increase our invalidation point to 10%, with everything else being the same.Â

`position size = $5000 x 0.01 / 0.1`

`$500 = $5000 x 0.01 / 0.1`

## Closing thoughts

**before**entering a trade.

An equally important aspect of this strategy is execution. Once youâve determined the position size and the invalidation point, you shouldnât overwrite them once the trade is live.