Discussing the article: "Building a Profitable Trading System (Part 2): The Science of Position Sizing"
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Check out the new article: Building a Profitable Trading System (Part 2): The Science of Position Sizing.
Even with a positive-expectancy system, position sizing determines whether you thrive or collapse. It’s the pivot of risk management—translating statistical edges into real-world results while safeguarding your capital.
Professional traders often advocate for risking only 1% to 2% of the account balance per trade. Some take an even more conservative stance, recommending less than 1%, particularly during periods of market volatility or uncertainty. These guidelines are not arbitrary—they are designed to preserve capital and protect traders from the emotional and financial damage that can result from losing streaks.
However, an important question remains: Are these recommendations universal rules, or can traders tailor position sizing to fit their specific account size, objectives, and risk appetite?
In this article, we’ll explore that question in depth—combining theory with quantitative evidence. Using Monte Carlo simulations, we’ll analyze the outcomes of different risk levels, investigate the probabilities of account blowouts, and evaluate whether more aggressive risk-taking ever makes sense.
By the end of this piece, you’ll be better equipped to determine whether to follow the 1%-2% rule—or break from it intelligently.
Author: Daniel Opoku