What it means
Fixed fractional sizing risks a constant percentage of current account equity on each trade — typically 0.5% to 2% per trade for active strategies. As equity grows, position size grows; as equity shrinks, position size shrinks automatically. The method ensures that drawdowns don't compound disproportionately and provides a smooth equity curve relative to over-aggressive sizing.
Why it matters
Fixed fractional is the simplest sizing method that ensures geometric growth without manual intervention. It's the default 'professional' baseline against which more sophisticated approaches (Kelly, vol-targeting) are compared. The 1% rule from market wizards' interviews refers to this method.
How to use it
Compute risk-per-trade = account equity × fixed % (commonly 1%). Derive position size from risk amount and stop distance. Recalculate after each trade as equity changes. Use 0.5% for new strategies, 1% for verified strategies, 2% for high-conviction systems. Above 2% per trade enters territory where drawdowns can become uncomfortable.
$10,000 account, 1% fixed fractional. Trade 1: risk $100. Win +2R = +$200. New equity $10,200, next trade risks $102. Trade 2: loss -1R = -$102. New equity $10,098, next trade risks $101. Position sizes adjust mechanically with equity.
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