Sizing from distance, not from habit
Why a flat 1% rule still fails when the chart demands a wide stop — and how to keep cash risk steady when structure is far away.
A fixed fraction of the account per trade sounds disciplined. It becomes careless when every idea uses the same fraction while stop distances vary wildly. A tight range-edge stop and a wide weekly swing stop cannot carry the same share count if cash risk is meant to stay constant.
The arithmetic
- Choose cash risk for this idea (an amount you accept losing if invalidation hits).
- Measure distance from entry to invalidation in the instrument’s native units.
- Divide cash risk by that distance (adjusted for contract or share value).
Wide structure means fewer shares. Tight structure means more shares — still capped by the same cash risk. Habit-based sizing skips step two and hopes the chart cooperates.
A mild warning
If the calculated size feels “too small to bother,” the chart is telling you the idea is expensive relative to your risk budget. Forcing a larger size by parking the stop closer to entry is not clever; it is a different idea with a different invalidation story.
We practise this arithmetic with worksheets in the Chart Structure Risk Workshop so the numbers become muscle memory before the next live session.