Position sizing answers a simple question: how much can this idea cost if it is wrong? Start there, not with how confident you feel.
The basic logic
Choose a maximum dollar or percentage risk for one trade. Define the price where the idea is invalid. The distance between entry and invalidation, together with the instrument’s value per point or share, determines the size.
Keep risk consistent
If the stop is wider, size should be smaller. If the stop is tighter, size may be larger only if the stop still reflects the trade idea. Changing size after a loss to “make it back” is a common sign of revenge trading.
Log planned risk alongside actual loss. It is one of the fastest ways to find whether execution matches your trading plan.
