Position Sizing & Account Risk

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, 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 and the 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: $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), 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, and wins measured by the setup’s magnitude.

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 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 · Trade Checklist · Adding to Winners · Start Small, Add to Winners
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