Why Position Sizing Matters
Two traders using the exact same strategy can have wildly different results based solely on position sizing. Too large = blown account. Too small = missed opportunities.
Fixed Fractional Sizing
Allocate a fixed percentage of your portfolio to each trade. Simple and effective:
- Conservative: 1% per trade
- Moderate: 2% per trade
- Aggressive: 3-5% per trade
Kelly Criterion
The mathematically optimal bet size: f = (bp - q) / b
Where b = odds, p = win probability, q = loss probability. In practice, most traders use "Half Kelly" to reduce volatility.
Confidence-Based Sizing
Our AI adjusts position size based on signal confidence. A 9/10 confidence signal gets a larger allocation than a 6/10 signal.
🤖 How Our AI Uses This
Each strategy uses confidence-weighted position sizing. Base allocation is 5% of portfolio. At 9/10 confidence, it scales to ~8%. At 6/10, it drops to ~3%. This ensures the AI bets big when conviction is high.
Key Takeaways
- Position sizing has more impact on returns than entry/exit timing
- Fixed fractional is simple and effective
- Kelly Criterion gives the theoretical optimal, but use Half Kelly in practice
- Scale position size with confidence