Learning From "The Man Who Broke the Bank of England": Why Position Sizing Is 80% of Your Trading Strategy
Position sizing is often overlooked by traders. Many traders become obsessed with finding the "Holy Grail" in the perfect entry setup — waiting for moving average crossovers to align perfectly, RSI to hit oversold, or a breakout pattern that is "confirmed". But in reality, that is not what determines whether you succeed or fail in trading.
The real key lies in position sizing — how much capital you stake each time you enter the market. A legendary world trader, Stanley Druckenmiller, once said: "Position sizing contributes 70-80% to a trader's success."
The meaning is simple — even if your system is average, you can still profit if you manage your position size well. But if you mismanage your sizing, even the best system can wipe out your account.
The Fundamental Formula: Edge + Sizing = Results
Every trader needs an edge — a logical reason why a trade has the potential to be profitable in the long run. But an edge without size control is like a fast car without brakes.
If you take on too much risk, your account can blow up even faster. If you risk too little, your account growth will go nowhere. What matters is understanding how much loss you can absorb without compromising your overall capital — and how to adjust your trade size according to risk level, capital, and market volatility.
"Bigger Lots Are Better"? Not Necessarily
Many traders make the mistake of doubling their position size when they feel confident about a setup. They think it is a big opportunity, so they should go all-in. But the reality is, risk does not increase proportionally with confidence.
The larger your position, the higher the emotional pressure. When the price moves against you, panic inevitably sets in, your hands tremble wanting to close early — and all discipline vanishes.
A wise trader is not one who is "fearless", but one who ensures every loss is still bearable without causing trauma that affects daily life. In the world of trading, what matters is not who generates profits the fastest — but who survives the longest in the market.
Learning From Soros & Druckenmiller
George Soros did not win because he was always right every time. He won because he knew when to bet big, and when to step back.
Soros and Druckenmiller believed in one core principle: "Trading is not about who is always right — it is about betting with the right size."
They only stepped on the accelerator when conviction was high and risk was controlled. That is the difference between a professional trader and a trader who trades on a whim.
On 16 September 1992, George Soros made history by "defeating" the Bank of England in an event known as Black Wednesday. While the British government was trying to defend the value of the pound within the European ERM system, Soros realised the currency was overvalued and began selling the pound on a massive scale.
Market pressure forced the Bank of England to raise interest rates and buy pounds in enormous quantities, yet it still failed to stem the decline. Britain ultimately withdrew from the ERM, the pound fell by more than 15%, and Soros pocketed a profit of approximately USD 1 billion — earning him the title from the global trading community as "The Man Who Broke the Bank of England."
The Real Challenge for Traders Is Emotion
Calculating position size is easy on paper. But when real money is involved, emotions take over. Many traders under-size promising trades out of fear of loss, and over-size weak trades out of greed to profit quickly.
This is why discipline is more important than skills. Use fixed rules — for example, only risk 1-2% of your capital per trade, or use formulas like the Kelly Criterion to adjust risk according to opportunity.
Kelly Criterion in Trading: The Mathematical Way to Determine Optimal Trade Size
The Kelly Criterion is a mathematical formula that helps traders determine how much capital should be staked on each trade to maximise account growth whilst minimising the risk of ruin.
The Basic Idea Behind Kelly Criterion
This concept was created by John L. Kelly Jr. in 1956 for betting strategies, but was later adopted by renowned investors such as Warren Buffett and Ed Thorp in investing and trading.
The basic formula:
f* = (bp - q) / b
Where:
- f* = the optimal percentage of capital to stake
- b = the ratio of profit to loss (example: if you risk RM1 for a potential profit of RM2, then b = 2)
- p = the probability of the trade winning
- q = the probability of the trade losing (1 - p)
Practical Example
Let us say your strategy has:
- 60% chance of winning (p = 0.6)
- Risk RM1 for a potential profit of RM1.5 (b = 1.5)
Then:
f* = (1.5 x 0.6 - 0.4) / 1.5 = (0.9 - 0.4) / 1.5 = 0.33
This means you should risk 33% of your capital per trade if you want maximum growth in theory.
But in the real world, traders typically use half or a quarter of the Kelly value (for example 10%) to reduce account volatility (drawdown).
Advantages & Risks
Advantages:
- Prevents overtrading and undertrading.
- Maintains optimal account growth over time.
- Suitable for strategies with a proven edge (stable win rate).
Disadvantages:
- Not suitable for untested strategies.
- Requires accurate data on win rate and reward-to-risk ratio.
- If miscalculated, it can lead to significant losses quickly.
The Kelly Criterion is not merely a formula — it is a way of thinking about risk and opportunity rationally. It teaches traders to not be greedy, not be fearful, and only take risks that are worthwhile given the actual edge of their strategy.
Or in simple terms:
"Kelly helps you trade based on mathematics — not emotions."
What Can We Learn From This:
In trading, entry is merely the beginning. Position sizing is the "fuel" that determines how far your journey goes.
If you master position sizing, you can control risk, build consistency, and let profits compound over time. But if you neglect it, no matter how brilliant your system is, it will not survive for long.
In short:
A good entry helps you win that particular trade.
Proper position sizing helps you stay in the game for the long haul.
And in the world of trading — the one who survives the longest is the real winner.
Want to Be a Trader Who Lasts, Not Just Wins Once or Twice?
Many people learn entry techniques — but forget the most important thing in trading: position sizing.
Because in the real world, it is not the most skilful chart reader who wins, but the one who is best at managing risk and capital.
That is why Pakej Gold Mahersaham was created — not just to teach you when to enter and exit the market, but how to remain standing in the market.
In this programme, you will learn:
How to calculate risk according to your own capital
Use position sizing like a professional trader
Understand the real edge of your strategy
And build a trading system that lasts, not one driven by emotions
If you are serious about learning to trade with strategy, not luck —
Join Pakej Gold Mahersaham today.
Learn the real secret to staying in the game for the long term, not just entering the market and hoping for the best.
Subscribe Now: /akauncds
Open a CDS Account with Mahersaham
FAQ: Position Sizing in Trading
What is position sizing in trading?
Position sizing is the method of determining how much capital to stake on each trade. It ensures that the loss on any single trade does not compromise your overall capital and helps traders remain consistent in the long run.
Why is position sizing more important than entry point?
According to Stanley Druckenmiller, position sizing contributes 70-80% to a trader's success. Even with an average entry system, a trader can still profit if they manage their position size well.
What are the risks of not practising position sizing?
Without proper position sizing, traders risk losing a large portion of their capital in a single trade, experiencing high emotional stress, and losing discipline when the price moves against their position.
How do you calculate the correct position size?
Calculate how much loss you can absorb without compromising your overall capital, then adjust the trade size according to risk level, current capital, and market volatility. Professional traders typically risk only 1-2% of their capital per trade.
What is the Kelly Criterion and how is it used in trading?
The Kelly Criterion is a mathematical formula (f* = (bp - q) / b) that determines the optimal percentage of capital to risk per trade. It was created by John L. Kelly Jr. in 1956 and is used by renowned investors like Warren Buffett. In practice, traders use a fraction (half or quarter) of the Kelly value to reduce drawdown risk.
Master position sizing and proven trading strategies for long-term success.
Open a CDS account via Register CDS Account Mplus to start trading with your own account.
New to stocks? Download the Free Stock Basics Ebook to understand the fundamentals of investing.
Further reading: