Position sizing

Most traders pick a size first and hope the stop works out. Good traders do it the other way around. They decide how much they will risk, find where their stop belongs, and let the math set the size.

The formula

You need 3 numbers:

• Dollar risk: the most you are willing to lose on this trade.
• Stop in ticks: how far your stop is from your entry.
• Tick value: what 1 tick is worth on your contract. Lesson 2 has the table.

Worked example

You are willing to risk $200. Your stop belongs 20 ticks from your entry.

• On MNQ: 20 ticks × $0.50 = $10 risk per contract. $200 ÷ $10 = 20 MNQ.
• On NQ: 20 ticks × $5 = $100 risk per contract. $200 ÷ $100 = 2 NQ.

Both trades risk the same $200. That matches lesson 3: 20 MNQ move the same dollars as 2 NQ.

Always round down

The math will often give you a fraction. Say $150 ÷ $40 = 3.75 contracts. Trade 3. Rounding up to 4 means risking $160, which breaks your own rule before the trade even starts.

Picking your dollar risk

A common approach is to risk a small, fixed share of your account or of your daily loss limit on each trade, so that a string of losses never does serious damage. Whatever number you pick, write it in your trading plan and use it every time.

Notice what does not appear in the formula: how confident you feel. Confidence is not a reason to size up. The setup and the stop decide the trade. The formula decides the size.

When the stop is wide

Sometimes the right stop is far away, and the formula gives you less than 1 contract on a mini. That is the formula telling you something useful. Switch to micros, or skip the trade. Never tighten a stop just to fit a bigger size. A stop belongs where the trade idea is proven wrong, which is the topic of lesson 11.

Use the calculator

The BluSky position size calculator does this math for you. Pick your contract, enter your dollar risk and your stop, and it shows the number of contracts plus the micro or mini equivalent.

Open the position size calculator

Practice

Work these out on paper, then check them with the calculator: $300 risk with a 12-tick stop on ES. $100 risk with a 40-tick stop on MNQ. $250 risk with a 25-tick stop on NQ.