Position sizing when the limit is the constraint
Sizing from account balance is the habit most traders arrive with. Inside an evaluation, the binding constraint is usually the drawdown rule instead.
FOREXIVE Trading Desk
· 2 min read
Ask a trader how they size and most will describe a percentage of the account. It is a reasonable default in a personal account, where the only thing that ends the game is running out of money. In an evaluation it is the wrong anchor, because the thing that ends the game arrives long before the money does.
The constraint that binds first
Two rules are competing to stop you: the daily limit and the maximum loss. Whichever has the least room is the one that matters today, and it is not always the same one. Early in an account the maximum is usually distant and the daily rule binds. After a difficult week the maximum can be the tighter of the two, and sizing that was comfortable on day one is no longer comfortable at all.
- Work out the remaining room under both rules.
- Take the smaller of the two.
- Size against that number, not against the balance.
Risk per trade is a fraction of the room you have left, not a fraction of the account you were given.
Why this feels too small
It will produce smaller positions than instinct suggests, particularly after a loss, which is precisely when instinct is least reliable. The compensation is that the arithmetic does not care how confident you are, and an evaluation is a test of whether your edge survives contact with a rule set rather than a test of conviction.
FOREXIVE Trading Desk
Rules, risk and evaluations. Articles are published under the desk that owns the subject rather than an individual byline.
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