Position Sizing

Position Sizing

Position sizing determines how much capital to risk per trade -- the single most important factor in long-term survival.

Sizing Methods

1. Fixed Percentage Risk (Default)

Position Size = (Account x Risk%) / (Entry - Stop)

Example: $10,000 account, 1% risk, entry $100, stop $95 => $100 / $5 = 20 shares.

2. Volatility-Based (ATR)

Position Size = (Account x Risk%) / (ATR x Multiplier)

| Market Volatility | ATR Multiplier | Effect | | ----------------------- | -------------- | ---------------------------- | | Low (ATR 80th pctl) | 2.5-3.0 | Wider stop, smaller position |

3. ATR-Hybrid (Recommended for Advanced)

Combines fixed % risk with ATR-based stop distance: Position Size = (Account x Risk%) / (ATR x Multiplier). Adapts to volatility while maintaining consistent dollar risk per trade.

4. Fractional Kelly Criterion

Full Kelly % = W - (1 - W) / R where W = win rate, R = avg win / avg loss.

Never use full Kelly. Use a fraction:

| Kelly Fraction | Risk Level | Who Should Use | | ---------------- | ------------------- | ------------------------------------ | | Half Kelly (50%) | Aggressive | Experienced with >100 trade sample | | Quarter Kelly | Moderate | Recommended starting point | | Tenth Kelly | Conservative | Learning, small sample size |

Quarter Kelly achieves ~75% of full Kelly's growth rate with far less drawdown risk.

Method Selection

| Situation | Method | | ------------------------------------- | ------------------------------ | | Starting out, 0.7) | | Daily loss limit | 3-5% of account -- stop trading | | Weekly loss limit | 5-8% -- reduce to 50% size, review | | Monthly loss limit | 10% -- 1 week break, resume at 25% size | | Pre-event | Cut 50-75% before Score >= 8 events |

Workflow

1. Get entry and stop loss from the technical analyst's analysis
2. Check committed risk and balance via get_portfolio_risk_state() (remaining R budget, margin used)
3. Check for correlated positions -- are existing positions in correlated assets?
4. Select sizing method based on situation (see table above)
5. Preview the size via preview_position_size(symbol=, side=, entry=, stop_loss=, risk_usd=) — returns quantity, leverage, notional. Use it to sanity-check before creating the insight.
6. Verify against limits -- single trade ) — sizing is recomputed server-side; previewpositionsize` is advisory only.

Key Rules

• NEVER use full Kelly -- quarter Kelly achieves ~75% of the growth with survivable drawdowns
• NEVER size based on conviction -- "I'm really sure" is not a sizing method
• NEVER increase size after losses to "make it back" -- revenge sizing is the fastest path to ruin
• NEVER hold full size into FOMC/NFP/CPI -- reduce pre-event, always
• Correlated positions (>0.7) are a single bet -- 5 long tech positions at 1% each = 5% in one sector
• Use the same method consistently; do not switch based on recent results
• Start with quarter Kelly, not half; track every trade for Kelly inputs

Related Skills

• correlation-risk -- correlated positions must be sized as combined exposure
• stop-loss-strategies -- stop distance is a direct input to position size calculation

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: SKE-Labs
• Source: SKE-Labs/agent-trading-skills
• License: Apache-2.0

Install and usage instructions live in the source repository linked above.