---
title: "Position Sizing & Account Risk"
canonical: https://thestrat.ai/docs/position-sizing/
updated: 2026-09-23
author: Alex Sopa (AlexsOptions)
source: TheStrat docs (https://thestrat.ai/docs/)
---

Tools for AI agents: https://mcp.thestrat.ai — see https://thestrat.ai/agents/

# Position Sizing & Account Risk

By [Alex Sopa (AlexsOptions)](https://thestrat.ai/docs/alex-sopa/) · Updated September 23, 2026

**Definition** Position sizing is computing share/contract count from the distance between entry and stop so a losing trade costs a fixed fraction of the account: 0.5% to 2% per trade, max. Size flows from the [stop distance](https://thestrat.ai/docs/stop-losses/), not from conviction.

**The convention:** risk 0.5% to 2% of the account per trade, max. This is standard risk management rather than a TheStrat rule. [Rob never prescribed a percentage](https://thestrat.ai/docs/start-small-add-to-winners/), because risk profiles, account sizes and time horizons differ. The arithmetic below holds whatever number you pick. A string of 5 losses (which will happen) then costs 2.5 to 10% of the account, which is survivable. At 10% risk per trade, 5 losses is a 40%+ drawdown.

## The formula

**Position size = (Account × Risk%) ÷ (Entry − Stop)**

Example: $10,000 account, 1% risk = $100 max loss. Entry $50.00, stop $49.50 (50 cents away). Size: $100 ÷ $0.50 = 200 shares. Total position value: 200 × $50 = $10,000, 100% of the account. Possible, but it uses all capital; adjust risk% or stop distance until the position fits.

Reference risk amounts at 1%: $5,000 account = $50 per trade; $25,000 = $250; $100,000 at 0.5% = $500. The stop is set first, at the structural level; the size is derived from it, never the reverse. See [stop losses](https://thestrat.ai/docs/stop-losses/) and the [trade checklist](https://thestrat.ai/docs/trade-checklist/).

## Why losses compound against you

Drawdown recovery is asymmetric: a 20% drawdown requires a 25% gain to recover; 50% requires 100%; 80% requires 400%. This is why tight risk per trade matters. Capital preservation comes before capital growth, because you can’t trade if you’re broke.

## Account minimums by style

- **Paper trading / charting:** $0. Always start here.
- **Swing trading equities:** $2,000 to 5,000. Position sizing on 1 to 3 stocks.
- **Day trading equities:** $25,000+. The PDT rule (US).
- **Day trading futures:** $5,000 to 10,000. No PDT, but margin requirements.
- **Options swing:** $5,000+. Needs contract granularity.
- **[VIX ETN short](https://thestrat.ai/docs/vix-etn-short/):** $5,000+. A single contract is enough, sized for spike survival.

**PDT rule:** a US margin account under $25,000 is limited to 3 day trades per 5 business days. Workarounds: a cash account (no PDT, but T+2 settlement ties up capital for 2 days), a futures account (futures aren’t securities under FINRA), swing trading (overnight holds don’t count), or multiple brokers (each tracks PDT separately).

## Small accounts

With $500 to $2,000: day trading equities is out (PDT); swing trading works but commissions and spreads eat returns at small size; micro futures (MES, MNQ) run at 1/10th the full contract. Paper trade until edge is proven. The realistic goal at $500 is proving the strategy works, not getting rich. Small accounts fail on fixed costs: commissions, spreads and slippage are the same dollars whether you are risking $5 or $500, so they consume a far larger share of a small account’s returns. Early on, size is the binding constraint, not skill.

This page does not put a number on what you should expect to make. TheStrat prescribes no return target and no win rate (see [Win Rate Doesn’t Matter](https://thestrat.ai/docs/trading-win-rate/)), and any figure quoted here would be invented. What the method does prescribe is the shape of the outcome: losses held to pennies by a [tight stop](https://thestrat.ai/docs/stop-losses/), and wins measured by the setup’s [magnitude](https://thestrat.ai/docs/actionable-signals/).

## When to change size

**Size up only when:** 100+ documented trades; win rate stable across at least 3 months; the next 1% risk is tolerable in dollar terms emotionally; and the increase isn’t driven by recent winners (recency bias). See [adding to winners](https://thestrat.ai/docs/adding-to-winners/) for sizing within a trade.

**Size down when:** the account is in drawdown over 5%; you’re emotional or off mentally; or setup quality is borderline.

**Related:** [Stop Losses](https://thestrat.ai/docs/stop-losses/) · [Trade Checklist](https://thestrat.ai/docs/trade-checklist/) · [Adding to Winners](https://thestrat.ai/docs/adding-to-winners/) · [Start Small, Add to Winners](https://thestrat.ai/docs/start-small-add-to-winners/)
**Back to:** [Stop Losses →](https://thestrat.ai/docs/stop-losses/)

TheStrat was developed by Rob Smith. These docs are written by Alex Sopa (AlexsOptions) and quote his teaching.