The Kelly argument
If you knew your win rate and your payoff ratio exactly, the Kelly criterion would tell you the optimal fraction of your bankroll to bet. You don't know them exactly, so you bet a fraction of Kelly (typically 25-50%) to survive estimation error.
A workable rule
A common rule of thumb: risk no more than 1-2% of equity on any single trade. 'Risk' here means the dollar distance from entry to your stop, multiplied by position size — not the notional.
Why this matters
A trader who risks 20% per trade has a ~50% chance of being down 50% within 10 trades, even with a profitable edge. Position sizing converts a positive-expectancy strategy into a survivable one.
Not financial advice
This lesson is educational material, not personalized advice. Examples and case studies are illustrative. Trading carries real risk of loss — never invest money you cannot afford to lose, and consult a licensed professional for guidance specific to your situation.