Position Size Mastery: Unlocking Maximum Gains And Minimising Losses

by | May 15, 2023 | News | 0 comments

If you have been losing money trading crypto, it’s probably because you are terrible at risk management.

Following the recent crypto market crash, a significant number of individuals experienced liquidation.

The question you should ask yourself before putting your money in a trade is how much am I willing to lose in this trade?

If you can’t ask or answer this question, you will end up being a broke trader

In this post, you will learn about position size and the risk-reward ratio, which are two strategies in risk management.

Watch Jude Umeano as he explains how he uses a position size calculator to always stay profitable in this short video.

The Power Of Risk Management

Risk management is used by traders to manage their crypto portfolio, and wage against excess potential loss.

You see, risk management is more important than learning how to trade, use indicators, candle sticks and all that. Yet, many people don’t teach it.

Here is what I mean:

If Emeka is good with technical analysis and his signal are correct most of the time, he might end up blowing his account if he does not know proper risk management.

On the other hand, another trader, Ola, might know nothing about technical analysis.

But because he knows proper risk management, even if he gambles on the market, he will end up having better returns than Emeka.

Now, think about this: What if Ola can access Emeka’s signal? He will make crazy gains, right?

This is just a snippet of risk management. Continue below, where I explain the risk-reward ratio and how you can start practising it for winning trades.

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Understanding Risk/Reward Ratio

Risk/Reward ratio is simply saying that your winning trade margin should be higher than your losing trade margin

Now, let’s say I placed 100 trades and the outcome was 50 wins and 50 losses. I would still likely be in good profit, right?

The reason is that my profits from my winning trades were larger than my losses from my losing trades. That makes sense, right?

As a matter of fact, for a very good risk-reward ratio, if I lose 66% of my trade and win only 34%, I should still be in profit or at least break even.

Through technical analysis, great traders can see if a trade has an excellent risk-reward ratio before taking that trade.

If you want to learn technical analysis, do these two things. 

  • Open a  👉 Bybit account and make a deposit. There is a $30,000 bonus up for grabs.
  • Take this 👉 course on technical analysis.

Now let’s take a deep dive into position size, simplified.

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Becoming A Master At Position Size

Position size indicates how much money you are willing to put into a trade based on your total capital and how much money you are willing to lose per trade. 

It also helps you determine the leverage you should use.

Position size is very important because even with a good risk-reward ratio setup, you can still blow your account if you don’t properly calculate your position size.

Again, position size keeps your overall portfolio in profit, even when you have a losing streak.

The first question to ask yourself when calculating position size is: How much am I willing to lose in this trade?

Most traders risk 1% to 3% of their trading portfolio.

If I choose a position size of 1%, it means that I would have to lose 100 times consecutively for me to blow my portfolio, and this is if I don’t recalculate each time.

So, even if you are gambling, it is almost impossible to have 100 losses consecutively, right?

Here is the formula for Position size:

Position size = Risk amount / distance to Stoploss (Invalidation point)

Risk amount = total capital x risk % (amount you are willing to lose)

Distance to stop loss (long) = (Entry – Stop loss)/Entry

Distance to Stop loss (Short) – (Stop Loss – Entry)/Entry

Let’s take two examples to make sense of the above.

Example 1:

Let’s say you have a capital of $1,000 and you want to risk 1% of it per trade.

i.e $1,000 X 1% = $10. This means that if your trade hits stop loss, you lose $10.

Let’s also assume that from your technical analysis you came up with this signal:

  • Long BTCUSDT
  • Entry = 22,000
  • SL = 21,500
  • TP= 25,000

Distance to Stop Loss (long) = (22,000-21500)/22000 = 0.0227

Therefore, position size = 10/0.0227 = 440 contracts. (I will tell you why it is called contracts later)

Now, what this means is that if you enter a trade with $440 and your trade hits stop loss, you will lose $10. It makes sense, right? It even gets more interesting with example 2.

Example 2:


  • Long BTCUSDT
  • Entry = 22,000
  • SL = 21,800
  • TP= 23,000

Distance to Stop loss here is = (22,000-21,800)/22,000 = 0.009

Position size = 10/0.009 = 1,111 contracts

Again, if you enter this trade with $1,111 and hit stop loss, you will lose $10.

But, wait, your total capital is $1,000; where will you get the extra $111 from?

This is where leverage comes in and that it’s why the position size result is called contracts.

In the first example, we got 440 contracts, which means that you can only enter 2 trades at a time with your $1000 capital. What if you want to enter up to 20 trades at a time?

In the second example, we got 1,111 contracts, which means you don’t even have enough capital to enter this trade.

To solve the issue, you have to determine the actual amount you want to enter a trade with and the amount of leverage you would use.

If you are using the cross margin, the actual amount should not be less than the exchange’s minimum entry amount.

It should not also be less than both the exchange minimum entry amount and your risk amount if you are using an isolated margin.

On the Bybit exchange, the minimum entry amount is $3.

This then means that if the exchange you are trading with, in the examples, is Bybit, then your amount per trade should be:

  • $3 and above if you are using cross margin
  • $10 and above if you are using an isolated margin.

Great job learning about position size! To become better at it, it’s important to understand how to calculate your leverage. See below!

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How To Calculate Your Leverage

To calculate leverage, the formula is:

L = PS (position size)/chosen trade amount

Back to the previous examples. Let’s say your chosen trade amount is $10

  • Example 1

L = 440/10 = 44X

This means that if you use $10 and the leverage of 44X (gotten from this calculation) to enter a trade and your stop loss is triggered, you will lose $10.

  • Example 2

L = 1111/10 = 111.1X

Not all exchanges have this level of leverage. As a result, let’s adjust the trade amount to $20.

L = 1111/20 = 55.5X

Again, if you enter a trade with $20 using the above leverage of 55X and hit stop loss, you would lose $10.

Interesting, right? That’s the power of risk management through proper position size.

Now, if you are wondering how to manually do all these calculations yourself, worry not! We have launched an app that simplifies the process.

The name of this app is Afibie Position Size Calculator.

It’s available on the Google Play Store, and it’s coming soon on the App Store.


We have come to the end of this post.

I’m confident that you have become an expert in position size.

Have you downloaded the Afibie app yet? Just a friendly reminder to do so.

Do you have further questions? Leave them in the comment box below.


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Paschaline Anagor