Understanding Position Sizing: Beyond Just Stop-Loss

Position sizing is far more than just setting a stop-loss; it's about determining the appropriate number of units (shares, contracts, lots) to buy or sell to ensure that if your stop-loss is hit, your total account risk remains within a pre-defined percentage (e.g., 1-2%). For instance, if you're looking at $DEFI at 72.3897 and your analysis suggests a stop at 71.91, knowing your account balance and your acceptable risk percentage is crucial to calculate how many units you can safely take on, preventing a single trade from disproportionately impacting your capital.