What it means
Position size is calculated from how much you are willing to lose if the stop is hit: size = (equity × risk %) ÷ (stop distance × value per point).
Example: equity 20,000, risk 1% (200), stop distance 3.6 points, value 1 per point per unit: size ≈ 55 units.
Why traders use it
Sizing from the stop keeps every loss the same in money terms, whatever the chart looks like. That makes results comparable and keeps drawdowns under control.
Chart examples
Size from stop distance
How to identify it objectively
- 1Decide risk per trade as a percentage of equity.
- 2Measure the stop distance from entry.
- 3Know the instrument's value per point (contract size, tick value).
- 4Round size down, never up.
Bullish use
- 1Long: stop distance = entry − stop.
- 2Size so a stop-out costs exactly your risk amount.
Bearish use
- 1Short: stop distance = stop − entry.
- 2Same formula.
What confirms it
- Contract specifications verified with the broker.
- Costs included in the stop distance.
What invalidates it
- Unknown stop distance or contract value: no size can be calculated.
How a hypothetical setup is built
Entry
From your strategy.
Stop
From structure, never moved to fit a size.
Target
From your strategy; size does not change it.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Risk Management & StatisticsRisk of Ruin
- Technical IndicatorsATR (Average True Range)
- Risk Management & StatisticsExpectancy
- Full guide on The TradeskillEntry, Stop, Target and Reward-to-Risk
Historical testing
Pure arithmetic: nothing to backtest. The Session Liquidity Playbook has a calculator that applies this formula.
Limitations: when it fails
- Gaps and slippage can make the real loss larger than planned.
- Leverage limits can cap size.
- Value per point differs by instrument and broker.
Knowledge check
Pick an answer to see the explanation. Nothing is saved.