Understanding the Importance of Adjusting Position Sizing to Risk

Many friends in the FA room are probably familiar with the term Risk-Reward, but sometimes we overlook the basic principle of adjusting Position Sizing to match the risk of each trade. In reality, this is a crucial factor that helps our portfolio survive in the long run. It's not just about finding good stocks, but about controlling how much we are willing to lose each time. For example, if I am willing to lose only 1% of my portfolio on a $LUNA trade and set a Stop Loss at 1.25 (from an Entry of 1.26), it means I can only buy a certain amount such that if it drops below 1.25, my loss will not exceed the 1% I set. Doing this helps us continue trading even if we encounter some losses, instead of running out of money from just a few heavy losing trades.