Understanding Position Sizing Beyond 'X% of Account'

Many new traders hear about risking 1-2% of their account per trade, and that's a solid starting point. But true position sizing also involves your stop loss placement. If you're risking 1% on a trade where your stop is 100 pips away, your actual capital at risk per pip is lower than if your stop is only 20 pips away. The art is in adjusting your share/lot size based on your predetermined stop loss to ensure that the monetary value of your risk remains consistent, regardless of the distance to your stop. This helps smooth out equity curves and prevents single wide-stop trades from disproportionately impacting your account when they go south.