Glacier Valley · Camp 2 · Supply Hut
Position sizing
In the middle of the glacier stands a stone hut with smoke curling from its chimney. Sabri, the quartermaster, weighs the pack of everyone who crosses the valley and writes down every bite in a logbook. Here you'll learn how much to risk on a trade and how to turn that into a lot size.
The camp's rules
- 01
Risk a small, fixed percentage of your account on each trade. Most experienced traders stay between 0.5% and 2%. This camp uses 1%.
- 02
The percentage comes from your current balance. If the account shrinks, your risk shrinks with it. If it grows, so does your risk.
- 03
Lots = money at risk ÷ (stop distance in pips × pip value per lot). On EUR/USD, 1 pip is worth about $10 on 1 standard lot and $1 on 0.1 lots.
- 04
First you pick the stop from the chart, then you work out the lot size from it. Pulling your stop closer just to trade a bigger lot is driving your stake into rotten ice.
- 05
Trades that hang on the same move are one risk. Buying EUR/USD and GBP/USD at the same time is the same position against the dollar, taken twice. Put a cap on the total risk of your open trades (say, 3%).
Teaching
Ten losses in a row
Imagine risking the same percentage of your balance on every trade, and losing ten times in a row.
At 1% risk, the account drops 9.6%. At 2%, 18.3%. At 5%, 40.1%. At 10%, 65.1%.
Long streaks are less far-fetched than they sound: with a 50% win rate, your odds of hitting five losses in a row somewhere in 100 trades are 81%. Your percentage decides how much pack you have left when the streak is over.
Sabri · Quartermaster
Stop first, then lots
The order never changes: pick your stop from the chart, measure the stop distance in pips, then work out the lots.
Lots = money at risk ÷ (stop distance × pip value per lot). On EUR/USD, 1 pip on 1 standard lot is worth about $10.
Example: a $10,000 account, 1% risk = $100, a 20-pip stop. 100 ÷ (20 × 10) = 0.5 lots. With a 50-pip stop: 100 ÷ (50 × 10) = 0.2 lots.
Sabri · Quartermaster
Trades that move together
EUR/USD and GBP/USD usually move the same way, because both are priced against the dollar. Buying both at once is one big position against the dollar.
One piece of news can move many instruments together: a US inflation report shakes the dollar, gold and the Nasdaq in the same minute.
That's why, on top of risk per trade, you also cap the total risk of your open trades (say, 3%). Trades that move together can fill that cap all by themselves.
Sabri · Quartermaster
Lessons · 5
- Story
Supply Hut
Meet Sabri and learn why you never empty your pack in a single day.
- Lesson
The 1% rule
Count risk as a percentage of your balance: how much of your pack melts away in a bad streak?
- Lesson
Lot size math
Turn your risk and stop distance into a trade size.
- Lesson
Two ropes, one stake
Add up the risk of trades that move together, and put a cap on your open risk.
- Exam
Supply Hut exam
Work out the percentage, the lots and the total risk yourself.
Test yourself
Account $10,000, rule 2% per trade. How much is at risk on one trade?
- ✓ $200
- · $20
- · $2,000
10,000 × 0.02 = $200.
Ten losses in a row at 10% risk per trade. What's left of a $10,000 account?
- ✓ About $3,490
- · $0
- · $9,000
Each loss takes 10% of what's left: 10,000 × 0.9¹⁰ ≈ $3,490. 65% of the account is gone. To climb back, you'd have to nearly triple what remains.