Track 04 · Risk & Portfolio Building
Position sizing and risk rules
How large a position should be, where a thesis is invalidated, and why correlated bets stack up.
The tolerated loss decides the size: 1% of the portfolio (=$500) divided by a 20% thesis stop caps the position at $2,500 — 5% of the account.
Five 5% positions on the same cycle are one 25% bet: cap the group, not just the ticker.
Size before entry
Decide the loss you can accept on a position first, then let that number decide the size. A common starting point is risking no more than 0.5–1% of the portfolio on any single idea.
On a $50,000 portfolio with a 1% rule, a $500 tolerated loss on a position you expect to fall 20% before you would abandon it caps the position near $2,500, or 5% of the portfolio.
Invalidation before price targets
Define what would prove the thesis wrong: a broken growth rate, a lost contract, a dividend cut, debt that can no longer be rolled. That condition, rather than a hoped-for price, is your exit logic.
Naming it in advance turns a stressful decision later into a simple check you already agreed to.
Correlated positions stack up
Five positions of 5% each are fine until all five are the same semiconductor cycle wearing different tickers. That is a single 25% bet.
Group positions by their real driver and cap the total: sector, commodity, currency and interest-rate exposure all count toward the same limit.
- Cap any single position (commonly 3–7% for a diversified portfolio).
- Cap any single factor or sector so it cannot dominate.
- Re-check correlation when you add to a winner.
- Add only when the new thesis differs from what you already own.
Three things to remember
- 01Risk per position first: the tolerated loss decides the size.
- 02Write the condition that invalidates the thesis before entering.
- 03Correlated holdings are one bet; cap the group rather than just the ticker.
Try it on live data
Tools on this site are for research and education. Nothing here is financial advice or a recommendation to buy or sell.