Most trading accounts are not destroyed by bad analysis but by a few trades that were simply too big. Position sizing is the one part of trading you fully control, so it is where you should start.
Risk a small, fixed percentage
Decide in advance how much of your account you are willing to lose on a single trade. A common rule is 1–2%. On a $1,000 account, 1% is $10. That amount stays the same whether the setup looks perfect or not.
Place the stop first
Your stop-loss goes where the trade idea is proven wrong, usually just beyond the level you are trading from, plus a small buffer for the spread. Never move the stop closer just to make the position bigger.
Then calculate the lot size
Lot size = Money at risk ÷ (Stop distance in $ × Value of $1 move per lot)
On most brokers one standard lot of XAUUSD is 100 ounces, so a $1 move in price is worth $100 per lot. Always check the contract size in your own broker's specification.
Reward-to-risk and win rate
The reward-to-risk ratio (R:R) compares your target distance with your stop distance. The higher it is, the less often you need to be right just to break even:
| R:R | Win rate needed to break even |
|---|---|
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
Many traders skip any setup below 1 : 1.5. Costs such as spread and commission push the real break-even rate slightly higher than the table.
Why losses hurt more than they look
| Loss | Gain needed to recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 50% | 100% |
Key takeaways
- Fix your risk per trade (1–2%) before you look for entries.
- Stop first, lot size second, never the other way round.
- Only take trades where the reward is worth the risk.