Position Sizing for Crypto When Volatility Is Triple Stocks
Crypto assets routinely move 5-10% in a day. A position size that's reasonable for an index fund is reckless for a token with 100% annualised volatility. Sizing has to be derived from the asset's own volatility, not from a rule of thumb borrowed from equities.
The core calculation
Decide the maximum you're willing to lose on a trade — commonly 1-2% of portfolio. Then size the position so that a realistic adverse move equals that loss. If a token's typical adverse move is 25%, and you're willing to lose 1% of a $10,000 portfolio ($100), your position is $400, not $2,000.
Why the same dollar amount is wrong in both directions
table
The illiquidity trap
Sizing a thin market position as if you can exit at the quoted price is the most common way people lose more than planned. Check the depth at 2% either side of the price. If your position is a large fraction of that depth, your effective risk is much higher than the formula says.
Cap the number of positions
Total risk is the sum. Ten positions at 1% each is 10% at risk, which is a bad week away from a serious drawdown. Cap concurrent positions at three to five, and treat correlated tokens as one position.
The mistakes that cost people money
- Sizing on conviction rather than volatility.
- Ignoring order-book depth for small-cap tokens.
- Treating three correlated alts as three independent bets.
- Not accounting for slippage on exit.
Common questions
What's a reasonable risk per trade?
1% of portfolio for most people, 2% maximum if you have a tested edge and accept deeper drawdowns.
Should I use stop losses in crypto?
On liquid assets yes. On thin markets, stops can be hunted and gap through — position size is the more reliable control.