Calculate position size from your invalidation level

Place the stop where the trade idea is invalidated

For a long position, invalidation might be acceptance below a previously reclaimed range. Describe that condition before entry. A stop placed an arbitrary percentage below entry may sit inside normal noise; moving it farther away after entry changes the original risk contract. A tighter stop permits more quantity mathematically, but it does not make the trading idea more robust.

Separate the analytical invalidation level from the execution instruction. A price condition can trigger an order, but the final fill depends on the order type and available liquidity. Use an adverse execution allowance when planning, and record the actual difference after exit.

Position size formula: risk budget ÷ loss per unit

Here quantity means base-asset units, not a count of contracts: convert contracts using their multiplier first. For a linear payoff, budget = quantity × (adverse price distance + fees + execution allowance + funding debit per unit) + fixed costs. Subtract fixed costs from the budget before dividing. If the budget is exhausted, no positive quantity fits. Use the inverse payoff for inverse contracts; do not reuse this linear equation.

The risk percentage is a planning input, not a universal recommendation. Account equity, other open positions and correlated exposures matter. Three small positions in highly correlated coins can act like one large trade. Check the combined scenario before treating each individual budget as available.

Example: a 50 USDT risk budget sizes 0.0714 BTC

Assume 10,000 USDT of equity and an illustrative 0.5% trade budget: 50 USDT. A BTC linear long enters at 60,000 with invalidation at 59,400. Reserve 60 USDT per BTC for round-trip fees and 40 for adverse execution. These are hypothetical allowances, not an exchange fee schedule.

The denominator is 600 + 60 + 40 = 700 USDT per BTC. Quantity is at most 50 ÷ 700 = 0.071428… BTC. With a 0.0001 BTC size step, round down to 0.0714 BTC. Its notional is 4,284 USDT and its planned loss is 49.98 USDT. A leverage change affects the margin required; it does not multiply this fixed quantity's price loss again.

When slippage pushes the loss past the budget

Suppose the exit slips another 300 USDT per BTC beyond the allowance. The position loses an additional 21.42 USDT, so the planned budget is exceeded. This does not make the sizing equation wrong: it reveals that its execution assumption failed. A stop is not a guaranteed maximum loss. Reduce quantity, improve the execution plan or skip the trade if plausible stress outcomes are unacceptable.