Sizing
How much capital does this setup deserve?
Most traders answer “how much?” with conviction.
This framework answers it with constraints.
Three limits apply to every position. The smallest one wins.
Can I afford the risk?
→ a maximum size
Does this setup deserve that much capital?
→ a maximum size
Do I still have room in the portfolio?
→ a maximum size
Each question produces a number. Each can produce a different number.
The position is sized to whichever is smallest.
Can I afford the risk?
The stop determines the size. Not conviction, not the story, not how much I like the chart.
If a fixed amount is at risk on every trade, then a wider stop buys fewer shares. This is arithmetic, but it runs opposite to instinct — most traders reason that a better-looking setup deserves a bigger position, when the actual driver is where the stop sits.
Position size = risk budget ÷ stop distance
Illustrated at 1% account risk per trade.
Does this setup deserve that much capital?
Framework 03 ranks opportunities. A ranking that does not change allocation is not a ranking — it is a comment.
Each grade carries a maximum. These are hard ceilings, not multipliers applied to the number from question 1. If grades multiplied that number, a C-grade setup with a tight stop could end up larger than an A-grade setup with a wide one — which would defeat the purpose of grading at all.
The A ceiling is also the concentration limit. No single position exceeds it, whatever its grade.
Do I still have room?
The first two questions size a position. This one asks whether the portfolio can take another position at all.
It is measured in risk, not in capital deployed. Two portfolios can hold identical capital and carry wildly different risk, depending on where the stops sit. Capital deployed is not the variable that hurts.
Aggregate open risk = the sum of what every open position loses if every stop is hit.
If open risk already sits at the ceiling, no new position opens — regardless of how good the setup is.
A maximum number of open positions is a useful habit, but it is a proxy — four positions risking 1.5% each and two risking 3% each carry identical portfolio risk.
Different questions bind in different situations. That is why there are three.
Position size is determined by constraints, not conviction.
Three limits apply to every position.
The smallest valid number wins.
What This Framework Is Not
It Is Not Equal Position Sizing. Buying the same amount every time ignores where the stop sits.
It Is Not Conviction Sizing. Conviction already had its say at Framework 03, where it became a grade and a ceiling.
It Is Not Story Sizing. Sector narratives and news flow do not appear in any of the three questions.
The Handoff
“How much?”
“Now what?”
This is the first framework whose output is a number rather than a classification.
Version 0.2 — Ceilings, budgets, and thresholds are provisional and will be refined as the framework evolves.
Frameworks are revised as the market teaches us something. Subscribers get the revision and the reason.
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