Most traders spend their time looking for better entries. The traders who last spend at least as much time on a less exciting question: how much should I put into this trade? Position sizing decides whether a losing streak is an annoyance or the end of your account. No signal service, ours included, can answer it for you, because it depends on your account and your tolerance for loss. This guide shows you how to answer it yourself.
Risk is what you lose at the stop, not what you invest
Beginners often think of risk as the amount they put into a trade: "I bought $1,000 of ETH, so I'm risking $1,000." With a stop loss in place, that's not quite right. If you buy $1,000 worth and your stop is 3% below your entry, the planned loss if the stop is hit is about $30, plus fees and any slippage.
So there are two different numbers:
- Position size: how much of the asset you hold (here, $1,000 worth).
- Risk: how much you lose if the stop is hit (here, about $30).
Good position sizing starts from the second number and works backwards to the first.
The 1-2% rule
A widely used guideline is to risk no more than 1-2% of your trading account on any single trade. With a $5,000 account that means a planned loss of $50 to $100 per trade.
Why so small? Because losing streaks are normal, even for sound strategies. Look at what a run of consecutive losses does to an account at different risk levels:
| Risk per trade | After 5 losses in a row | After 10 losses in a row |
|---|---|---|
| 1% | −4.9% | −9.6% |
| 2% | −9.6% | −18.3% |
| 5% | −22.6% | −40.1% |
| 10% | −41.0% | −65.1% |
Recovering from losses is harder than taking them: after a 40% drawdown you need a 67% gain just to get back to where you started. Small, fixed risk keeps you in the game long enough for a strategy's edge, if it has one, to show.
The position-size formula
Once you know how much you're willing to lose, the position size follows directly from the distance to your stop:
position size (in coins) = (account × risk %) ÷ |entry − stop loss|
Or, in money terms:
position value = (account × risk %) ÷ (stop distance in %)
Worked example: a long trade
- Account: $5,000
- Risk per trade: 1%, so $50
- Entry: $2,500
- Stop loss: $2,425, which is $75 or 3% below the entry
Position size = $50 ÷ $75 = 0.667 coins, worth about $1,667. If the stop is hit, you lose about $50 (1% of the account) before fees and slippage.
Same account, a wider stop
If another trade has its stop 8% away, the position value becomes $50 ÷ 8% = $625. The wider the stop, the smaller the position. This is the key idea: your risk stays constant; your position size adjusts to the stop. Don't move the stop closer just to buy more; the stop belongs where the trade idea is invalidated.
Risk-to-reward and win rate work together
Whether a strategy makes money depends on two numbers together: how often it wins, and how much a win pays relative to a loss (the risk-to-reward ratio, R:R). The break-even win rate before costs is:
break-even win rate = 1 ÷ (1 + R:R)
| Average R:R | Break-even win rate |
|---|---|
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
That's why a high hit rate alone means little, and why you should be careful with any track record that reports only a win rate. Fees, spreads and slippage raise the real break-even point a little further. For more on targets and ratios see entry, stop loss and take profit explained.
Leverage: same maths, bigger consequences
Leverage lets you open a position larger than your margin. It doesn't change the formula above: your loss at the stop is still position value × stop distance. What leverage changes is how easy it is to take positions far larger than you should, and it adds a new danger: liquidation. With 20× leverage, a move of roughly 5% against you can wipe out the margin before your stop is even reached, and funding fees accrue while you hold.
If you use leverage at all, size the position with the formula first, then use only as much leverage as needed to open that position, and check that the liquidation price is well beyond your stop. SignalEye signals never assume or recommend leverage.
Limits beyond a single trade
Per-trade risk is the foundation, but a few account-level rules help too:
- Total open risk. Cap the combined risk of all open trades, for example at 5% of the account. Crypto assets often move together, so five "different" long trades can behave like one big one.
- Daily or weekly loss limit. Stop trading for the day or week after a set loss. It protects you from revenge trading.
- Keep a trading journal. Record entry, stop, size, outcome and whether you followed the plan. It's the only way to know if your results come from the strategy or from your execution.
Common mistakes
- Sizing by conviction. "This one looks great, I'll go bigger." The trades you feel best about lose too.
- Moving the stop further away when price approaches it. This turns a planned small loss into an unplanned large one.
- Doubling up after losses to win it back quickly. This is how small drawdowns become blown accounts.
- Ignoring fees and slippage, especially on short timeframes with tight stops.
- Trading money you need. Only trade funds you can afford to lose entirely.
Applying this to signals
Every SignalEye signal includes an entry and a stop loss precisely so you can do this calculation before you trade. A practical routine:
- Decide your fixed risk per trade, for example 1% of your account.
- When a signal arrives, measure the distance from the entry, or your actual fill price, to the stop.
- Calculate the position size with the formula.
- Check total open risk across your trades.
- Place the stop immediately after entering.
Do this every time, and no single signal, however wrong, can do serious damage to your account. That's the point of risk management: not to avoid losses, which is impossible, but to make sure you can always afford the next trade.