position-sizing

name	position-sizing
description	Risk-budget position sizing — Kelly criterion adaptation, micro account rules, per-strategy calibration
triggers	["position size","lot size","how much","risk per trade","Kelly","sizing","allocation","trade size"]
tier	core
dependencies	[]

Position Sizing

Overview

Determines how much capital to allocate to each trade. The #1 factor in long-term trading survival — more important than entry signals.

When to Use

• Every trade signal (automated via risk_manager.py)
• When account size changes significantly
• When adjusting risk parameters
• When CC asks "how much should I risk?"

The Process

Phase 1: Account Classification

Account Size	Classification	Risk Per Trade	Model
< $500	Micro	8%	Risk-budget, advisory caps
$500 - $5,000	Small	3-5%	Standard risk-budget
$5,000 - $50,000	Medium	1.5-2%	Full Kelly fraction
> $50,000	Large	1-1.5%	Half-Kelly conservative

Phase 2: Risk-Budget Sizing (Primary Method)

Position Size = (Account Equity × Risk%) / (Entry Price - Stop Loss Price)

Example (Micro Account):

• Equity: $136
• Risk: 8% = $10.88
• Entry: BTC at $65,000
• Stop: $63,000 (ATR-based, $2,000 below entry)
• Position size: $10.88 / ($65,000 - $63,000) × $65,000 = $353.60
• In BTC terms: 0.00544 BTC

Phase 3: Kelly Criterion Adaptation

Kelly% = (Win Rate × Avg Win / Avg Loss) - (1 - Win Rate) / (Avg Win / Avg Loss)
Half-Kelly = Kelly% / 2  (recommended — full Kelly is too aggressive)

Only use Kelly when you have:

• Minimum 30 trades of history for the strategy
• Stable win rate (not trending down)
• Consistent average win/loss ratio

Phase 4: Strategy-Specific Adjustments

Strategy Type	Sizing Modifier	Reason
Trend Following	0.8x base	Wider stops = larger position notional at same risk
Mean Reversion	1.2x base	Tighter stops = can afford larger position
Breakout	0.7x base	Higher false breakout rate
Volume Profile	1.0x base	Standard
Multi-TF Momentum	0.9x base	Multiple timeframe alignment reduces but doesn't eliminate risk

Phase 5: Correlation Check

Before sizing, check via correlation_tracker.py:

1. How many correlated positions are already open?
2. If new trade is correlated (r > 0.7) with existing position:
   • Reduce size by 50% if 1 correlated position exists
   • Skip if 2+ correlated positions exist
3. Effective position count = actual positions × average correlation

Phase 6: Final Validation

• Position size ≤ 25% of account equity (single-asset cap)
• Total risk across all positions ≤ 15% of equity (portfolio cap)
• Daily loss limit not already hit (5%)
• Kill switches not triggered

Key Rules

• NEVER risk more than the per-trade limit, regardless of conviction
• Conviction score modifies WITHIN the risk budget, doesn't override it
• High conviction (0.8+): full position size. Medium (0.5-0.8): 70%. Low (0.3-0.5): 50%
• Position size is calculated BEFORE entry, not adjusted after
• If the minimum viable position size exceeds risk limits: DO NOT TRADE

Code Reference

• core/risk_manager.py — RiskManager.calculate_position_size()
• core/engine.py — position sizing integration
• core/correlation_tracker.py — correlation-adjusted sizing