Position sizing on a swing - the mathematics of surviving weeks

In day trading you can correct a position in 10 minutes. On a swing, a position-sizing error stays with you for 10 days. That is why swing sizing is not a lot calculator. It is a system that protects you from a gap, a losing streak and the temptation to add to a losing trade.

This lesson gives you ready-made formulas, risk thresholds and scaling rules that work when you hold positions for weeks.

Why ATR and not a % of the price

A fixed SL of 2% from the entry price makes no sense. For a stock with a D1 ATR of 1.2%, that SL sits inside the noise. For a stock with a 4% ATR it is too tight and will throw you out twice a day.

SL based on ATR:
SL long = Entry price - k * ATR(D1, 14)
Where k = 1.5 - 2.5 for a D1 swing, 2.0 - 3.5 for a W1 position

Smaller k = tighter SL = more trades stopped out, but a smaller loss per trade
Larger k = looser SL = a lower chance of being stopped out, but more PLN at risk

Pick k and keep it for a given setup. Do not change k because you “feel like it”.

The base position-size formula

Inputs:
Account = 20,000 PLN
Risk per trade = 0.8% = 160 PLN
Instrument = Stock X, Price = 50 PLN, ATR D1 = 1.8 PLN, k = 2.0
SL = 50 - 2.0*1.8 = 46.4 PLN
Distance to SL = 3.6 PLN

Position size (shares) = Risk in PLN / Distance to SL
= 160 / 3.6 = 44.44 = 44 shares

Position value = 44 * 50 = 2,200 PLN (11% of the account)

For CFD/FX:
Lots = Risk in PLN / (SL distance in pips * Pip value in PLN)

The total exposure limit

A beginner mistake: 5 positions at 1% risk each, all on indices. Theoretically 5% risk, practically 4.5% because they are correlated.

Introduce 3 limits:

Limit 1: Sum of open risk = max 3-4%
Example: You have 3 open positions at 1% risk each = 3%. You do not open a new one until you close one at BE or TP.

Limit 2: Exposure to a sector/basket = max 2%
If you are long PKO, PEKAO and mBank - that is 3x banks. Treat it as one sector position of 2% instead of 3x1%.

Limit 3: Max 6 swing positions at the same time
Above 6 you lose control over the earnings calendar and swap. Your brain cannot track it.

Scaling - adding and pyramiding

On a swing, 2 models are allowed, provided you do not increase the initial risk:

Model A: 2 entries planned in advance (better for beginners)

Entry 1: 50% of the position on the D1 signal
Entry 2: 50% after a pullback or on a close above the previous high
SL for the whole position below the first low
The total risk is still 1%, you split it into 2 packages

Model B: A pyramid only from profit (for W1 trends)

Entry 1: 1% risk, SL at -1 ATR
When the position is +1R, move the SL to BE and add 0.5% risk with the SL below the new low
The total risk is still max 1% because the first one is at BE
Never add to a loser. Only to a position more than 1R in profit.

The anti-martingale rule:
A -1R loss -> the next position risks 0.8%
2 losses in a row -> the next position risks 0.6%
After 3 losses -> a 2-day pause and a review, you do not raise the stake

Calculator - ready-made templates

Template 1 - Warsaw Stock Exchange (GPW) stock swing:

Account: ___ PLN
Risk %: 0.8% → ___ PLN
ATR D1 (14): ___ PLN
k: 2.0
SL distance = ATR*k = ___ PLN
Number of shares = Risk in PLN / SL distance
Round down. Check whether the position value is <25% of the account.

Template 2 - ETF / index swing with a gap limit:

SL distance = max(1.8*ATR D1, Max historical gap over 1 year *1.2)
Example: ATR=1.5% gives an SL of 2.7%, but the max gap in the year = 5%. So SL = 5%*1.2=6%
Size = Risk / 6%
This is how you protect yourself from the SL physically not working on a gap.

Template 3 - Real R after costs:

Real risk = Initial risk + 10 days of financing cost + commission *2
Net R = (Gross profit - costs) / Real risk

When the plan says do not trade

1. When you cannot calculate the position in 60 seconds. If the formula does not add up, the instrument has an odd specification or too little liquidity. Reject it.
2. When 1% risk = >25% of the account value per position. That means the SL is too narrow versus the ATR and the leverage is too large. The instrument is not for you on this account.
3. When you already have 4% risk open and you want to open a 5th position “because it would be a waste”. A limit is a limit. You do not negotiate with the spreadsheet.
4. When your last loss came from a gap and you want to win it back with a bigger position. Emotional upsizing after a gap is the fastest route to -10% of the account in 2 days.
5. When you want to add to a losing position to average down. On a swing, averaging a loss = a position 2x bigger for 2 weeks underwater. Never.

The mistakes that cost the most

A measurable exercise

Title: 20 positions with a calculator

1. Build a spreadsheet. Columns: Ticker | Price | ATR D1 | k | SL distance | Risk in PLN (0.8%) | Quantity | Position value | % of account | Max annual gap.
2. Enter 20 historical setups (ones you would have taken) and calculate the position size for each as if the account were 20k PLN.
3. Mark where the % of account >25%, or where the max gap > SL distance - those are setups rejected by sizing, even if they look technically clean.
4. Simulate a streak of 6 losses at 0.8% and 4 wins at 1.8R. Calculate the equity curve. Compare it with the same series but with martingale (1.6% after a loss).

Pass criterion: A 20-row spreadsheet + the equity curve for 2 scenarios + 1 personal rule: after how many losses you reduce risk.

Check yourself

1. Account 30k PLN, risk 1% = 300 PLN. ATR D1 2 PLN, k=2. SL = 4 PLN. How many shares do you buy? What is the position value?
2. Why is an ATR-based SL better than a fixed 3% on a D1 swing?
3. You have 3 longs in banks, each at 1% risk. Why is the total risk not 3% but more in terms of exposure? What do you do?
4. When may you add to a swing position? Give 2 safety conditions.
5. Calculate: A streak of L, L, W (2R), L, W (2.5R). Start 20k, risk a fixed 1% in PLN from the starting balance. What is the result in PLN and R after 5 trades?

Frequently asked questions

Can I swing trade with 1% risk on a 5,000 PLN account? Mathematically yes, but in practice an SL based on ATR D1 may require a position of 1,200-1,500 PLN (20-30% of the account). That is a lot of frozen capital. That is why on a small account a risk of 0.5% and fewer positions at the same time is safer for your psychology and margin.

Should I round up or down? Always down. A risk of 0.85% is better than 1.15% from rounding. The system is meant to protect, not to maximise.

What if my broker has a minimum of 1 lot and my formula gives 0.3 lots? The instrument is too large for the account at that SL. Two options: grow the account, or find a mini contract or an ETF with a smaller value. Do not tighten the SL to squeeze the position in.

---

Educational material. This is not investment advice. Position sizing is the foundation of risk management - always calculate before entry, never after.

---