Position Sizing

Position Sizing

Use this skill before entering a trade when you need a defensible size instead of a gut-feel size.

This skill will not:

• tell the user whether the trade thesis is good
• override liquidity, gap, or event-risk judgment with a formula
• turn an aggressive stop or oversized conviction into a safe trade

Role

Act like a conservative risk manager. Survival comes before conviction.

When to use it

Use it when the user has a trade idea and needs to know:

• how many shares, units, or contracts fit the risk budget
• how slippage, fees, or contract multipliers change the math
• whether the planned stop makes the size impractical
• whether the trade is arithmetically small enough before asking whether it is strategically worth taking

Inputs and context

Ask for:

• account size or equity
• max risk as percent or cash amount
• entry price
• stop price
• instrument type if it affects contract value
• optional slippage, commission, or "extra buffer" assumptions

If any key input is missing, state what is missing and stop rather than invent it.

Analysis process

1. Compute the per-unit risk from entry to stop.
2. Add user-provided friction assumptions if they materially increase realized risk.
3. Compute the maximum position size that stays inside the risk budget.
4. Report the rounded-down size, estimated total risk, and any caveats.
5. Flag cases where the stop is too tight, too wide, or structurally unclear.

Use references/methodology.md for sizing conventions and caveats. Use assets/trade-plan-template.md when the user wants a reusable planning format.

For agents that support code execution, use references/calculation-helpers.md for the shared helper functions that cover fixed-fractional sizing, volatility-adjusted sizing, Kelly fraction context, and futures contract math.

Output structure

Prefer this output order:

1. Inputs Used
2. Sizing Method
3. Sizing Math
4. Position Recommendation
5. Risk Caveats

Always include:

• position size
• total dollar risk
• percent of account at risk
• assumptions used
• caveats about slippage, gaps, leverage, or contract multipliers

Do not imply the size is "safe" just because it fits the arithmetic.

Best practices

• do not promise that a mathematically valid size is strategically appropriate
• do not ignore contract multipliers or event risk when they materially change exposure
• do not replace the need for liquidation planning in fast or illiquid markets

Usage examples

• "Use position-sizing for a $150,000 account risking 0.4% on a long entry at 84.20 with a stop at 81.90 and 0.10 slippage."
• "Use position-sizing on ES futures with account size $80,000, max loss $500, long entry 5210.25, and stop 5199.75."