How to determine your trade position size

Position sizing is the most important risk management tools that trader haves.

And risk management if probably the most import element of any strategy.

I hope this post will help some of you in your trading journey.

First, the easiest way.. You can use my position sizing calculator to easily respect your own risk. It also calculate leverage. (Link in comment)

Or you can learn how to do it yourself by keeping on reading...

The formulas to calculate your position sizes require 4 elements:

Account Size — This is the total USDT, Bitcoin, Ethereum or any other crypto that you use for your trading.
Include any open trade and update your account size once your trade is exited.
Example: You have 1000 USDT, you open a trade with a position size of 100 USDT. For your next trade, you will still use the 1000 USDT to calculate your Position Size. Once your trade is closed whether, in profit or loss, you will then update your Account Size by adding the profit or loss of that close trade.

Entry Price — This is the Limit price at which your trading strategy tells you to go Long or Short.
If you are entering your trade using a Market order, use an approximation of your entry price. Make it the worst entry price, like there will be slippage. By doing this, you will protect yourself from a real surprise if the market is highly volatile.

Stoploss Price — This is the price of your first stop-loss that would get hit if the position goes against you. If you don’t know where your stop-loss should be, learn how to determine your crypto stop-loss . Opening a trade without knowing your stop-loss is a terrible idea and will only get you rekt sooner or later.

Maximum Risk % — This is the maximum risk in percentage that you are willing to take for each trade. This is really up to you, but I would suggest that you start with a risk % between 0.5% and 1.5%.
Even if that seems pretty small, unless you know exactly the best risk per trade because you have backtested and forward tested your strategy, 0.5%-1.5% will keep your equity safe from the high volatility of the crypto market.

Using these 4 elements, we will be able to get our position size in Amount (USDT, BTC, ETH), in percent (% of our account size), and in Units (ADA, XRP, TRX, LINK).

Below are all the formulas that you will need in order to calculate it. Or you could simply use my Position Size calculator 😉

Position Amount Size Formula

This is the formula to calculate how much of the base currency you invest in your trade. Base currency example: TRX/BTC, BTC is the base currency, BTC/USDT, USDT would be the base currency.

Position Size Formula for a LONG position

(Account Size * (Max Risk % X 0.01)) / (Entry Price - Stoploss Price) X Entry Price

Lets see an example of a LONG position for BTC/USDT.

Account Size: 1000 USDT
Entry Price: 30,000 USDT
Stoploss Price: 28,000 USDT
Max Risk %: 1.5%

(1000 X (1.5 X 0.01)) / (30,000–28,000) X 30,000 = 225 USDT

Lets take it apart:

(Account Size * (Max Risk % X 0.01))
(1000 X (1.5 X 0.01)) = 15 USDT — This is the maximum amount that we are willing to risk on that trade.

(Entry Price — Stoploss Price)
(30,000–28,000) = 2000 USDT — This is the amount we would lose if our stop loss was hit and we had bought a full BTC.

(Account Size * (Max Risk % X 0.01)) / (Entry Price — Stoploss Price)
15 / 2000 = 0.0075 — This is the amount of BTC that you should buy in order to only lose 15 USDT (1.5% of your Account Size) if your trade hits the stop loss.

(Account Size * (Max Risk % X 0.01)) / (Entry Price — Stoploss Price) X Entry Price
0.0075 X 30,000 = 225 USDT By multiplying the amount of BTC you should buy by the Entry price, you will get the Position Size amount for your Base currency.

Position Size Formula for a SHORT position

This is very similar to the LONG position calculation but we will Reverse the Entry Price and Stoploss price in the formula, it goes like this:

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price - Entry Price) X Entry Price

Let’s see an example of a Short position for BTC/USDT.

Account Size: 1000 USDT
Entry Price: 30,000 USDT
Stoploss Price: 31,000 USDT
Max Risk %: 1%

(1000 X (1 X 0.01)) / (31,000–30,000) X 31,000 = 300 USDT

Lets take it apart:

(Account Size * (Max Risk % X 0.01))
(1000 X (1 X 0.01)) = 10 USDT — This is the maximum amount that we are willing to risk on that trade.

(Entry Price — Stoploss Price)
(31,000–30,000) = 1000 USDT — This is the amount we would lose if our stop loss was hit and we had bought a full BTC.

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price)
10 / 1000 = 0.01 — This is the amount of BTC that you should buy in order to only lose 15 USDT (1.5% of your Account Size) if your trade hits the stop loss.

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price) X Entry Price
0.01 X 30,000 = 300 USDT By multiplying the amount of BTC you should buy by the Entry price, you will get the Position Size amount for your Base currency.

Position Size Percentage Formula

To get the Position Size in percentage, we will use the previous formulas but we will divide the results of those by our Account Size and then multiply the result by 100. like this for a LONG:

(((Account Size * (Max Risk % X 0.01)) / (Entry Price - Stoploss Price) X Entry Price) / Account Size) X 100

So if the total of ((Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price) X Entry Price) = 300 USDT and our account size is 1000 USDT (300 / 1000 = 0.3) X 100 = 30. We would invest 30% of our Account Size in that trade.

The formula for Position size percentage for SHORT:

(((Account Size * (Max Risk % X 0.01)) / (Stoploss Price - Entry Price) X Entry Price) / Account Size) X 100

Position Size Lot (Units) Formula

This formula will tell us how much of the quote currency we should buy in order to respect our maximum risk %. Quote currency example: BTC/USDT, BTC would be the quote currency, ETH/BTC, ETH would be the quote currency.

This one is easier as we already saw it in the first formula paragraph. We will use the same formula that we used for Position Amount Size, but we will remove the last multiplication. So it would go like this:

Long Lot (Units) formula:

(Account Size * (Max Risk % X 0.01)) / (Entry Price - Stoploss Price)

Short Lot (Units) formula:

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price - Entry Price)