Glossary
Position Sizing
The process of determining how much capital to allocate to a single trade or strategy.
Position sizing controls risk and compounding. Methods include fixed fractional sizing, Kelly Criterion, and volatility targeting. Proper sizing can make a modest edge profitable, while poor sizing can ruin a strong strategy.
Key Points
- Kelly Criterion estimates optimal bet size from win rate and payoff ratio.
- Half-Kelly or quarter-Kelly is common to reduce drawdowns.
- Position sizing has a larger impact on long-term wealth than entry timing.