01

Define the trade first

Before thinking about share count or contracts, define what needs to happen for the idea to be wrong. That is your invalidation point.

02

Choose acceptable risk

Decide the dollar amount you are willing to lose if the trade fails. This is a risk decision, not a prediction about how likely the trade is to work.

03

Match size to the distance

A wider distance between entry and invalidation generally calls for less size. A smaller distance does not mean more certainty; it simply changes the math of the risk.

04

Respect total exposure

Look at the whole account and related positions. Several trades that depend on the same market move can add up to more risk than they appear to have individually.