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Unit sizing

Treating one standard risk amount as a single unit so trades, pyramids and limits can be counted rather than calculated.

A unit is one normalised slug of risk, usually equal to your standard risk-per-trade. If 0.5% of equity is one unit, then "I am four units long tech" is immediately meaningful, whatever the share counts underneath.

Counting in units makes portfolio rules simple to enforce. A typical set: maximum two units in one instrument, four units in one sector, twelve units open across the book. That last number is just portfolio-heat expressed in whole numbers, and it stops the slow accumulation of correlated positions that each looked small on their own.

Units also make a trading-journal comparable across time. Because a unit is a fraction of current equity, "plus 6 units this month" means the same thing at $20,000 and at $200,000, while dollar figures do not.

Related: risk-normalisation, pyramiding, max-open-risk, portfolio-heat

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

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