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How Professionals Really Think About Position Size

  • #1
  • First Post: Mar 3, 2026 4:48pm Mar 3, 2026 4:48pm
Professional traders don’t risk the same percentage on every trade. They don’t treat all setups equally. Instead of blindly risking 1% per trade no matter what, they first classify the setup. Is it average? Strong? Exceptional? Position size comes after that judgment, not before.

A simple conviction model could look like this:
- 3-star idea risks around 1%,
- 4-star idea around 3%,
- 5-star idea around 6%.

The point is not the exact numbers. The point is that better opportunities deserve more capital. Not every trade should be sized the same.
There’s also a big difference between total capital and free capital. Total capital is what’s in your account. Free capital is what you can afford to lose without wrecking yourself mentally or financially.

For example, if your account is $5,000 but realistically you are only prepared to risk $500, then $500 is your true free capital. That’s the number your position sizing should be based on — not the full account balance.

The beauty of this approach is that it adjusts automatically. When you’re winning, your free capital increases, so your position sizes naturally increase too. Your winning trades get bigger. When you’re losing, free capital shrinks, so position sizes shrink as well. Losses become smaller. It’s self-correcting without you having to force it.

This creates a compounding effect on the upside while limiting damage on the downside. When you’re in good form, the system allows you to scale up and maximize strong periods. When you’re struggling, risk contracts and protects you. Upside stays open. Downside gets capped.
That’s how professionals survive long term. Not by predicting perfectly — but by sizing intelligently.

I’ve been using the position sizing approach inspired by Brent Donnelly for a few years now, and it has helped me a lot. I usually lose small on average trades just to stay engaged with the market, but when all the conditions align, I win big on the high-conviction setups. That difference changes everything over time.


p/s: Bitcoin’s volume in 2022 was crazy
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  • #2
  • Mar 4, 2026 3:16am Mar 4, 2026 3:16am
Different look on volume if we look how money was exchanged hands.
Price x volume = money that exchanges hands.

1 BIC at 120k = 6 BIC at 20k

Basically same amount of money was exchanges hands.
Low (red circle) vs. high (green circle) volume difference is 2.9
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I might be wrong , I have been wrong before
  • #3
  • Mar 5, 2026 4:01pm Mar 5, 2026 4:01pm
Quoting Mandariin
Different look on volume if we look how money was exchanged hands. Price x volume = money that exchanges hands. 1 BIC at 120k = 6 BIC at 20k Basically same amount of money was exchanges hands. Low (red circle) vs. high (green circle) volume difference is 2.9 {file}
Oh, thanks. I didn't know this before.
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  • #4
  • Mar 6, 2026 6:41am Mar 6, 2026 6:41am
Quoting nguyenduy747
Professional traders don’t risk the same percentage on every trade. They don’t treat all setups equally. Instead of blindly risking 1% per trade no matter what, they first classify the setup. Is it average? Strong? Exceptional? Position size comes after that judgment, not before. A simple conviction model could look like this: - 3-star idea risks around 1%, - 4-star idea around 3%, - 5-star idea around 6%.

...

I usually lose small on average trades just to stay engaged with the market, but when all the conditions align, I win big on the high-conviction...
The ability to assess setups (3-stars, 4-stars, 5-stars) is what separates profitable traders from struggling traders who often trade "blindly".

When I was at this level, the next step in my evolution / journey was to only trade 5-star (I call them A+ trades) setups. These types of setups don't appear very often but they're extremely profitable, the challenge became more about having the patience to wait for the setup then later to wait inside the trade. This naturally progressed to trading A+ / 5-star setups over longer and longer time horizons => less trading, more patience, managing positions over the holding period to maximize profitability.
  • #5
  • Mar 7, 2026 4:33pm Mar 7, 2026 4:33pm
Quoting CoffeeFreak
{quote} The ability to assess setups (3-stars, 4-stars, 5-stars) is what separates profitable traders from struggling traders who often trade "blindly". When I was at this level, the next step in my evolution / journey was to only trade 5-star (I call them A+ trades) setups. These types of setups don't appear very often but they're extremely profitable, the challenge became more about having the patience to wait for the setup then later to wait inside the trade. This naturally progressed to trading A+ / 5-star setups over longer and longer time...
I see your point, but I have a slightly different perspective.

First, waiting only for 5-star or A+ setups can be very similar to waiting for a “perfect trade”. In reality, when you require too many conditions to align, those setups may only appear once every few months.

Second, staying out of the market for long periods can actually make traders lose their sense of the market.. Instead of waiting passively, taking smaller trades can help you stay engaged and continuously follow market behavior.

Third, once a trader already has a proven edge, taking smaller trades more consistently can often be better for optimizing returns than waiting for extremely rare “perfect” setups.

Another issue is the psychological pressure. When someone waits for a long time, the moment a setup meets maybe 90% of the conditions, the temptation to enter early becomes very strong. In practice, it becomes difficult to truly wait for a perfect A+ trade.

Finally, the idea of only trading perfect setups might work better for mechanical or systematic strategies. For human traders, maintaining market sense and consistent participation can sometimes be more realistic.
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  • #6
  • Mar 7, 2026 8:00pm Mar 7, 2026 8:00pm
But it only works for experienced traders. For sure you need to increase your risk, not sticking to banal 1%. It’s a totally right approach, but only if you already have an edge, experience, and can easily adjust without harming your foundation. For beginners or traders who haven’t yet hit the road of consistency, I’d rather recommend sticking to fixed risk. At least you won’t think about thing: risk management, full dedicating yourself to emotional management and market analysis. Just IMHO
  • #7
  • Mar 8, 2026 5:17am Mar 8, 2026 5:17am
Quoting nguyenduy747
Professional traders don’t risk the same percentage on every trade. They don’t treat all setups equally. Instead of blindly risking 1% per trade no matter what, they first classify the setup. Is it average? Strong? Exceptional? Position size comes after that judgment, not before. A simple conviction model could look like this: - 3-star idea risks around 1%, - 4-star idea around 3%, - 5-star idea around 6%. The point is not the exact numbers. The point is that better opportunities deserve more capital. Not every trade should be sized the same. There’s...
Agreed, I do this with some of my EAs dynamic sizing based on rsi Adx and momentum. I exit accordingly reducing risk as indicators fade
  • #8
  • Mar 8, 2026 5:33am Mar 8, 2026 5:33am
Quoting nguyenduy747
{quote} I see your point, but I have a slightly different perspective. First, waiting only for 5-star or A+ setups can be very similar to waiting for a “perfect trade”. In reality, when you require too many conditions to align, those setups may only appear once every few months. Second, staying out of the market for long periods can actually make traders lose their sense of the market.. Instead of waiting passively, taking smaller trades can help you stay engaged and continuously follow market behavior. Third, once a trader already has a proven...
I understand what you're saying but there's no such thing as "the perfect trade", my friend.

And no, taking smaller trades consistently (such as 3-star / C trades) doesn't optimize returns as these often end up as small losses, small wins and break-even, eventually netting very little to nothing over a long period of time. It's far more optimal to wait for and be fully positioned in the strongest trending assets and managing the position to maximize returns. Yes, I've done both and have been doing this full time for over 5 years.

Having said that, we all look at the markets from our own perspectives and have different needs and desires. Understanding how we as individual traders look at the market and aligning that with our own needs & desires is what it means to discover who you are as a trader. IMHO, of course.

What you wrote may all sound great from your current perspective, but let's turn this on its head and look at if from a different perspective. If you could go back in time and buy bitcoin below $1 USD or buy NVDA below $1 back in 2002 (and add it to it along the way) into their current ATHs, would you? And the even better question, would you rather wait a few months for the opportunity to invest heavily into BTC or NVDA at the very beginning of the trend, let it unfold naturally and manage the position to maximize profitability (lighten up / take partial profits on rallies and buy it back/add to the position on major dips) all the way into their current ATHs or would you rather take shorter term trades (3-star, 4-star & 5-star setups) over the same time period of 15 (BTC) / 25 (NVDA) years.

I would prefer the former because I view markets as cycles and my specific need is to maximize profitability with minimum time in front of the screen on a daily basis.

This wasn't always the case. When I was still an inexperienced, struggling trader, I needed action (trading in and out) from the markets. I also personally felt that I "had to do something to make money" as well as the need "to be right". Making money while sitting on my hands and doing nothing was an impossible concept for me.

Nowadays, my current way turned this whole "agony of waiting months for a trade" into "I'm positioned in the best possible assets and don't need to exit this trend for years, just enjoy the ride". I love the feeling of making money away from the screen (sleeping, spending time with the family, travelling, playing golf etc), I can't imagine a better way to make a living.

Side Note: To be transparent, my current process and analysis framework would've missed the A+++ potential in both BTC & NVDA below $1, I only used these as an example because everyone is familiar with them. Having said this, my framework would have definitely seen the A+ opportunity in Microsoft and Apple back in 2002 and these 2 alone would've turned a $10K investment into $18+ million USD. My point is that these sort of opportunities are worth waiting for.

Hope this made sense.
  • #9
  • Mar 9, 2026 10:04am Mar 9, 2026 10:04am
Quoting CoffeeFreak
{quote} I understand what you're saying but there's no such thing as "the perfect trade", my friend. And no, taking smaller trades consistently (such as 3-star / C trades) doesn't optimize returns as these often end up as small losses, small wins and break-even, eventually netting very little to nothing over a long period of time. It's far more optimal to wait for and be fully positioned in the strongest trending assets and managing the position to maximize returns. Yes, I've done both and have been doing this full time for over 5 years. Having...
Honestly, I’m still using the small-loss, big-win strategy, but you explained very well the part about “I have to do something.” I still feel that urge after about a week without any trades.
Maybe I should backtest again using only A+ setups to see how the results look. Thank you very much for sharing your experience.
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  • #10
  • Mar 9, 2026 10:06am Mar 9, 2026 10:06am
Quoting jSandoval
But it only works for experienced traders. For sure you need to increase your risk, not sticking to banal 1%. It’s a totally right approach, but only if you already have an edge, experience, and can easily adjust without harming your foundation. For beginners or traders who haven’t yet hit the road of consistency, I’d rather recommend sticking to fixed risk. At least you won’t think about thing: risk management, full dedicating yourself to emotional management and market analysis. Just IMHO
Yes, I agree. Beginners should take at least around 100 trades first so they can start recognizing which setups are good and which ones are not. That experience is important before trying to adjust risk or optimize the strategy.
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  • #11
  • Mar 9, 2026 11:18am Mar 9, 2026 11:18am
Quoting nguyenduy747
{quote} Honestly, I’m still using the small-loss, big-win strategy, but you explained very well the part about “I have to do something.” I still feel that urge after about a week without any trades.
I've always had this urge (need) and still have it today. This is what I meant when I wrote: "Understanding how we as individual traders look at the market and aligning that with our own needs & desires (=urge) is what it means to discover who you are as a trader."

It's important you make an honest assessment of why you have this urge and figure out ways to satisfy this urge in way so that it doesn't end up in self-sabotage. In my case, it was FOMO that caused this urge, so I needed an analysis framework that identified which low-risk assets had the greatest upside potential. And as long as I am positioned in these assets, my FOMO is satisfied.

I personally found it easier to design and adapt processes suited to my personality (e.g. analysis that proved I wasn't missing out = no FOMO) than trying to change my personality (trying to get rid of my FOMO = impossible).

Anyways, I'll stop boring everyone with my ranting here. Best of luck in your trading journey!
  • #12
  • Mar 9, 2026 3:23pm Mar 9, 2026 3:23pm
Quoting nguyenduy747
Professional traders don’t risk the same percentage on every trade. They don’t treat all setups equally. Instead of blindly risking 1% per trade no matter what, they first classify the setup. Is it average? Strong? Exceptional? Position size comes after that judgment, not before. A simple conviction model could look like this: - 3-star idea risks around 1%, - 4-star idea around 3%, - 5-star idea around 6%. The point is not the exact numbers. The point is that better opportunities deserve more capital. Not every trade should be sized the same. There’s...
If you have the magical ability to discern high quality situations from low quality ones, why would you take the lower quality ones?? You wouldn't, unless you were a gambler who just wanted to trade no matter what. I'll take the 5* trades and sit on my hands the rest of the time.
  • #13
  • Mar 11, 2026 4:41am Mar 11, 2026 4:41am
Quoting Aphaynes
{quote} If you have the magical ability to discern high quality situations from low quality ones, why would you take the lower quality ones?? You wouldn't, unless you were a gambler who just wanted to trade no matter what. I'll take the 5* trades and sit on my hands the rest of the time.
Because it takes several months until a 5* setup appears, I take more risk on 3* and 4* trades to follow the market. That way I don’t lose my market sense, since I need to stay engaged every day.
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  • #14
  • Mar 11, 2026 6:04am Mar 11, 2026 6:04am
We can’t just slap the same risk percentage on every trade and call it discipline - that’s lazy sizing. The market throws us setups of wildly different quality, and if we treat them all the same, we’re basically flattening our edge. The conviction model is what separates pros from hobbyists: small risk on average trades keeps us sharp and connected, but when everything lines up, we step in with size and let those winners actually matter. That’s how equity curves bend instead of crawl.

The free capital concept is the real unlock here. Total account balance is just a number on the screen- free capital is what we can genuinely stomach losing without wrecking our headspace. That’s the figure that keeps us sane, keeps us from revenge trading, keeps us in the game long enough to compound. And the beauty is how it self-adjusts: when we’re in rhythm, free capital expands and we ride bigger winners; when we’re off, it contracts and losses sting less. The system breathes with us- expanding in good form, contracting in bad.

That’s the survival code. Not perfect prediction, but intelligent sizing. We’ve all seen traders who risk the same 1% on every setup- their equity curve looks like a flat ECG. The conviction model changes that. It’s not about gambling bigger, it’s about allocating smarter. Over time, that difference is everything.
For Gold, NY session offers superior tradability compared to London.
  • #15
  • Mar 11, 2026 6:55am Mar 11, 2026 6:55am
Solid framework. The conviction-based sizing is something a lot of traders overlook; they get stuck
on the "always risk 1%" rule without thinking about whether the setup actually warrants it.

The free capital concept is key too. Most blowups happen because people size off their full account
balance when mentally they can only handle losing a fraction of it. Once drawdown hits that real pain
threshold, discipline goes out the window.
One thing I'd add, it helps to have clear criteria for what makes a setup 3-star vs 5-star before the
trade, not during. If you're deciding conviction in the moment, it's easy to talk yourself into
5-star on every trade that looks good. A checklist (trend alignment, volume confirmation, key level,
catalyst, etc.) keeps it honest.
  • #16
  • Mar 11, 2026 8:11am Mar 11, 2026 8:11am
Interesting thread. I run algorithmic strategies across 8 pairs and this topic comes up a lot when people ask about my approach.

The conviction-based model makes total sense for discretionary traders, but there's a flip side worth mentioning: if you can't objectively quantify WHY a setup is 5-star vs 3-star, you're just giving yourself permission to overleverage on trades that "feel" good. And feelings are terrible risk managers.

What I've found works better for my style is keeping risk constant (2% per trade) but letting the MARKET determine position size through stop loss distance. Tight stop = bigger lot size within that 2%. Wide stop = smaller lots. The formula:

Lot size = (Account × 0.02) ÷ (SL pips × pip value)

This way the market structure dictates my exposure, not my gut feeling about how "good" a setup looks. A 30-pip stop on EURUSD naturally gets a bigger position than a 80-pip stop on GBPJPY.

The real professional edge isn't sizing up on conviction — it's surviving long enough for your edge to play out. I've backtested both approaches over 5+ years of data, and the fixed-risk method produces better risk-adjusted returns because it eliminates the overconfidence factor entirely.

That said, I can see the conviction model working if you have extremely well-defined criteria for each tier. The danger is when "5-star" becomes code for "I really want this one to work."
FXOptimize.com — Free EA Portfolio Optimizer for MT4/MT5
  • #17
  • Mar 11, 2026 8:47pm Mar 11, 2026 8:47pm
Quoting Newtrader025
We can’t just slap the same risk percentage on every trade and call it discipline - that’s lazy sizing. The market throws us setups of wildly different quality, and if we treat them all the same, we’re basically flattening our edge. The conviction model is what separates pros from hobbyists: small risk on average trades keeps us sharp and connected, but when everything lines up, we step in with size and let those winners actually matter. That’s how equity curves bend instead of crawl. The free capital concept is the real unlock here. Total account...
Yeah, it's like poker. Sometimes we have a good position, sometimes a bad one, and we make decisions based on that.
BTC/USD
  • #18
  • Mar 11, 2026 8:51pm Mar 11, 2026 8:51pm
Quoting Fxvpshosting
Solid framework. The conviction-based sizing is something a lot of traders overlook; they get stuck on the "always risk 1%" rule without thinking about whether the setup actually warrants it. The free capital concept is key too. Most blowups happen because people size off their full account balance when mentally they can only handle losing a fraction of it. Once drawdown hits that real pain threshold, discipline goes out the window. One thing I'd add, it helps to have clear criteria for what makes a setup 3-star vs 5-star before the trade, not during....
To be honest, most of my losing trades actually come from psychology even after I’ve already classified the setup. Even with a clear system, the mental battle never really disappears for me.
BTC/USD
  • #19
  • Mar 12, 2026 2:44am Mar 12, 2026 2:44am
Quoting PipNerdMath
Interesting thread. I run algorithmic strategies across 8 pairs and this topic comes up a lot when people ask about my approach. The conviction-based model makes total sense for discretionary traders, but there's a flip side worth mentioning: if you can't objectively quantify WHY a setup is 5-star vs 3-star, you're just giving yourself permission to overleverage on trades that "feel" good. And feelings are terrible risk managers. What I've found works better for my style is keeping risk constant (2% per trade) but letting the MARKET determine position...
Nice post, PipNerdMath

Unfortunately there is a huge blind spot that is rarely talked about in the retail trading community.

This thread is about how professionals think about position size, it doesn't however differentiate between pro discretionary and algorithmic / systemic traders. The difference between these 2 is that the former assess and trade market conditions, while the latter assess and trade their strategies. A trader who believes he / she is a discretionary trader but doesn't consider market conditions (most amateurs) is in reality an algorithmic / systemic trader that doesn't know it.

Traders who assess market conditions are better off with discretionary position sizing, while those who don't (majority of amateur traders) are better off with fixed position sizing.
  • #20
  • Mar 12, 2026 3:20am Mar 12, 2026 3:20am
Quoting nguyenduy747
{quote} To be honest, most of my losing trades actually come from psychology even after I’ve already classified the setup. Even with a clear system, the mental battle never really disappears for me.
Be careful of falling into the "it must be my trading psychology" trap, it is the final graveyard for many failed traders.

I am 99.99% certain that your problem isn't psychology. Instead I believe you're a discretionary trader that doesn't evaluate and trade market conditions. IMO, you're trading randomly but haven't realized it.

A position that is aligned with the underlying market will win and a position that doesn't will lose. This is an undeniable fact. I struggled for many years because I obsessed over indicators, systems, strategies, win rates, SL/TP ratios etc and when that failed I fell back on "trading psychology". I didn't realize it then but that "mental battle" / insecure feeling came from not knowing whether my position was aligned with the underlying market or not, had nothing to with my psychology.

It wasn't until I learned how to evaluate risk via analyzing market conditions that my trading became profitable. Little did I know that this was just the first step, the real learning started after this point.
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