position-sizer

---
name: position-sizer
description: Use when calculating risk-based position sizes for long stock trades, how many shares to buy, risk per trade, Kelly Criterion, or ATR-based sizing, including sector concentration checks.
category: Risk
version: 1.0.0
tools: []
---

# Position Sizer

Calculate the optimal share count for a long stock trade using risk-management principles. Supports three sizing methods:

- **Fixed Fractional**: risk a fixed percentage of account equity per trade (default 1%).
- **ATR-Based**: use Average True Range to set volatility-adjusted stop distances.
- **Kelly Criterion**: derive mathematically optimal risk allocation from historical win/loss statistics.

All methods apply portfolio constraints (max position %, max sector %) and produce a final recommended share count with a full risk breakdown.

## When to Use

User asks how many shares to buy; wants position size for a trade setup; mentions risk per trade, stop-loss sizing, or portfolio allocation; asks about Kelly Criterion or ATR-based sizing; or wants to check a position against portfolio concentration limits.

## Workflow

### Step 1: Gather Trade Parameters

Collect: account size (required); for Fixed Fractional — entry price, stop price, risk % (default 1%); for ATR-Based — entry price, ATR value, ATR multiplier (default 2.0x), risk %; for Kelly Criterion — win rate, average win, average loss, optionally entry/stop for a share count. Optional constraints: max position % of account, max sector %, current sector exposure. If the user gives a ticker but no prices, use web_search or knowledge_base_search to find the current price and suggest entry/stop levels.

### Step 2: Calculate Position Size

- **Fixed Fractional**: dollar risk = account size × risk % ÷ 100; risk per share = entry − stop; shares = floor(dollar risk ÷ risk per share).
- **ATR-Based**: stop distance = ATR × multiplier (default 2.0x); risk per share = stop distance; shares = floor(dollar risk ÷ risk per share).
- **Kelly Criterion**: Kelly % = win rate − ((1 − win rate) ÷ (avg win ÷ avg loss)); always apply **Half Kelly** (Kelly % ÷ 2) rather than full Kelly; if entry/stop are given, shares = floor((account size × half-Kelly %) ÷ risk per share), otherwise report the recommended risk budget.

**Load Methodology**: search the Knowledge Base for deeper sizing-methodology references if available; otherwise apply the guidance above and below directly.

### Step 3: Calculate Multiple Scenarios

If the user hasn't specified a single method, run comparisons: Fixed Fractional at 0.5%, 1.0%, and 1.5% risk; ATR-based at 1.5x, 2.0x, and 3.0x multipliers. Present a table of shares, position value, and dollar risk for each.

### Step 4: Apply Portfolio Constraints

If portfolio context is available, apply max position % and max sector % (using current sector exposure) as hard caps. When multiple constraints apply, **the strictest one wins** — explain which constraint is binding and why.

### Step 5: Present the Position Report

Return a structured chat report: method used and rationale; exact share count and position value; dollar risk and % of account; stop-loss price; any binding constraint; risk-management reminders (portfolio heat, loss-cutting discipline).

## Key Principles

1. **Survival first**: position sizing is about surviving losing streaks, not maximizing winners.
2. **The 1% rule**: default to 1% risk per trade; never exceed 2% without exceptional reason.
3. **Round down**: always round shares down to whole numbers, never up.
4. **Strictest constraint wins**: when multiple limits apply, the tightest one determines final size.
5. **Half Kelly**: never use full Kelly in practice — half Kelly captures 75% of growth with far less risk.
6. **Portfolio heat**: total open risk should not exceed 6-8% of account equity.
7. **Asymmetry of losses**: a 50% loss requires a 100% gain to recover — size accordingly.