Position Sizing for Crypto: How to Decide How Much to Put Into Each Trade

The Skill Nobody Talks About

When people start investing in crypto, they focus on WHAT to buy. The second question is WHEN to buy. But almost nobody asks the most important question: HOW MUCH to buy. This is called position sizing, and it is the single most important risk management tool you have.

Why Position Sizing Matters

I have seen talented traders blow up their accounts not because they were wrong about the direction, but because they were too aggressive with their position size. A 50% drawdown requires a 100% gain just to get back to break-even. Let that sink in.

Loss	Gain Needed to Recover
10%	11%
25%	33%
50%	100%
75%	300%
90%	900%

The Basic Rules

Rule 1: The 1-2% Rule

Never risk more than 1-2% of your total portfolio on a single trade or new position. If your portfolio is worth $10,000, do not risk more than $100-$200 on any single trade.

Note: "risk" does not mean "invest." If you buy $1,000 of Bitcoin with a 10% stop loss, your risk is $100 (1% of a $10,000 portfolio). That is proper position sizing.

Rule 2: Scale With Conviction

• High conviction (Bitcoin): Larger positions are acceptable because the risk of total loss is extremely low
• Medium conviction (Major alts): Moderate positions, typically 5-15% of portfolio
• Low conviction (Small caps): Tiny positions, 1-3% maximum
• Speculative (New projects): Money you can 100% afford to lose, 0.5-1% max

Rule 3: Account for Correlation

If you have 10% in Bitcoin, 10% in Ethereum, and 10% in five different altcoins, you effectively have 80% exposure to crypto — because they all move together. In a crash, your entire portfolio drops, not just individual positions.

Position Sizing for Sri Lankan Investors

Given the economic realities in Sri Lanka, I recommend even more conservative position sizing:

• Total crypto allocation: 5-20% of investable assets (not total savings)
• Bitcoin: 60-80% of crypto allocation
• Any single altcoin: never more than 5% of crypto allocation
• Speculative plays: treat it as entertainment money, not investment

How I Size My Positions

Before any investment, I ask three questions:

1. What is my maximum loss scenario? (Assume it can go to zero for altcoins)
2. Can I afford that loss without it affecting my life?
3. If this position goes to zero, will I still be able to continue investing?

If the answer to any of these is no, the position is too large.

Use our portfolio tools to model different position sizes.

Disclaimer: This is educational content only and is NOT financial advice. Position sizing guidelines are general principles, not specific recommendations. Your appropriate position sizes depend on your unique financial situation. Always consult a financial advisor.