On position sizing and stop loss placement
Hey everyone, still relatively new here, been trying to get my head around proper position sizing. I understand the basic math – risk a set percentage of capital per trade, then size based on your stop-loss distance. What I'm grappling with is the 'how' of determining that stop-loss. It feels a bit arbitrary sometimes. Do you guys always use fixed percentages of the entry price, or is it more about market structure (e.g., just below a swing low/high)? And if it's market structure, how do you handle instances where that natural level results in a really small or really large stop, significantly altering your position size for that trade? Does that not throw off your risk management uniformity if the dollar amount risked changes so much trade to trade?
It's rarely about fixed percentages; those don't account for market structure. Your stop needs to be at a level that invalidates your trade idea, which means considering support/resistance, moving averages, or other technical factors. If you can't identify a logical invalidation point, your setup might not be strong enough.