Everything before this lesson decides WHAT to trade and WHEN. This lesson decides HOW MUCH, and it is the only lesson in the course that can single-handedly keep you solvent while you learn everything else badly. The math is short. The discipline is the entire game.
The formula
From Lesson 0.4: define the stop first, then let the stop distance set the share count.
Shares = (account risk) ÷ (entry − stop)
Example: $3,000 account → risk $30 per trade
Setup: entry $4.20, stop $3.90 → stop distance $0.30
Shares = $30 ÷ $0.30 = 100 shares ($420 position)
Same account, tighter stop ($0.10): 300 shares.
Wider stop ($0.60): 50 shares. The stop sizes the trade. Always.
Notice what this kills: "how much should I put in?" is no longer a feeling. Wide-stop trades get small; tight-structure trades get bigger; the DOLLAR loss on a stop-out is identical every time. That uniform −1R loss is what makes the expectancy math of Lesson 0.4 real instead of theoretical, and it is why a 7-loss streak (statistically guaranteed, remember) costs 7% instead of an account.
The halt-name haircut
Two ceilings the formula must respect
- The liquidity ceiling: your position should be invisible in the tape. Keep it under ~1% of what the stock trades in a normal minute-burst, and always sanity-check against dollar volume (Lesson 1.3). If exiting your full size at market would move the price, you are not trading the stock, you ARE the stock.
- The concentration ceiling: one name, one story: never let correlated positions (two China floats on the same flow day) stack into one oversized bet wearing two tickers. Count them as one trade's risk.
Why 1% and not more
Risking 5%: 10-loss streak = −40%. Need +67% to recover.
Risking 10%: 10-loss streak = −65%. Need +186%. Functionally dead.
The streak WILL come (Lesson 0.4 put numbers on it). Sizing is not about any single trade; it is about making the guaranteed bad week mathematically boring. Professionals size so that no single day is interesting. Boring risk, interesting returns: that order, never reversed.
- Stop first, then shares = risk ÷ stop distance. The stop sizes the trade, every time.
- 1% per trade (0.5% while learning). The uniform −1R loss is what makes expectancy real.
- Halt names get the 3x haircut: size against the reopen gap, not the drawn stop.
- Respect the liquidity ceiling: if your exit would move the tape, the size is wrong.
- Correlated names count as one bet. The formula guards a trade; you must guard the day.
Drill: pre-compute your table
Make a card with your account size and the share counts for stop distances of $0.05 / $0.10 / $0.20 / $0.50 / $1.00 at 1% risk, plus a halt-name column at the 3x haircut. Tape it to your monitor. In the live moment, sizing must be a lookup, not a calculation, because the live moment is exactly when your arithmetic gets optimistic.