Fixed Fractional Position Sizing

Fixed fractional position sizing is a method where a trader risks a predetermined, constant percentage of their total account equity on every single trade. For example, if a trader chooses a two percent risk factor, they will adjust their position size so that a stop-loss hit results in a loss of exactly two percent of the total account balance.

This approach is highly effective for compounding because the dollar amount risked per trade increases as the account grows and decreases as it shrinks. It naturally scales the position size based on the distance between the entry price and the stop-loss level.

This technique is fundamental for long-term survival in volatile markets like cryptocurrency. It prevents the account from being wiped out by a series of consecutive losses.

By keeping the percentage constant, the trader ensures that risk remains proportional to the current account state.