Trading crypto without a sizing and exit plan is like driving without brakes. This guide compares popular position-sizing models (fixed-fraction, Kelly, volatility/ATR), turns stop-loss jargon into clear action steps (stop-market vs stop-limit, trailing stops, Chandelier Exit, OCO brackets), and adds futures-specific safeguards (isolated margin, liquidation and maintenance-margin basics). References are included so you can verify each concept.
Core concepts: account risk, trade risk, position size
Position sizing means deciding how many units to buy or sell given your account size and risk tolerance. A common retail anchor is to cap account risk per trade around 1–2% and derive position size from the distance to your stop (trade risk). In practice, you compute: position size = account risk ÷ trade risk. This framework is standard across investing primers.
Volatility matters because crypto’s price swings can be extreme and clustered; sizing and stop distance should expand when volatility expands and compress when it calms. ATR (Average True Range), introduced by J. Welles Wilder, is a popular way to quantify this.
Position-sizing methods you can actually use
Fixed-fraction (percent of equity)
Risk a small, consistent percent of your account per trade (for example 0.5–1% for spot; often less for futures). It’s simple, platform-agnostic, and aligns with most position-sizing primers.
Kelly-style (edge-based)
Kelly uses your win probability and win/loss ratio to compute a theoretical fraction of capital to risk. It maximizes long-run growth under strict assumptions; many traders down-shift to half- or quarter-Kelly to tame drawdowns and model error.
Volatility/ATR-based (vol-adjusted units)
Size the position so the dollar risk to your stop equals your chosen account risk, where the stop is set a multiple of ATR from entry. A common, transparent formula is: position size = account risk ÷ (ATR × multiple). This adapts naturally to crypto’s changing volatility.
Risk of ruin (sanity check)
Whatever method you use, your risk-per-trade and edge imply a probability of ruin. Classic work shows ruin rises as you risk more and falls with higher win rate and payoff ratio—use this to choose a smaller, survivable fraction.
Stop-loss types and when to use each
Stop-market (a.k.a. stop-loss)
When the stop price is hit, your order becomes a market order. Pros: highest chance of getting out. Cons: slippage in thin/fast moves. Useful in crypto’s jumpy conditions.
Stop-limit
When the stop triggers, a limit order is placed at your limit price. Pros: price control. Cons: no fill if price gaps through your limit—risky during spikes. Good when liquidity is deep and you can monitor closely.
Trailing stops
A stop that follows price as it moves in your favor, locking in gains while giving room to breathe. Exchanges and education hubs document trailing implementations for spot and derivatives.
ATR/volatility stops
Place the stop a multiple of ATR away (for example, 1.5–3× ATR). Wider in high-vol regimes, tighter in calm regimes; pairs naturally with ATR sizing.
Chandelier Exit (trend-following trail)
A rules-based trailing stop that sits a multiple of ATR below the highest high (long) or above the lowest low (short) over a look-back window—designed to keep you in trends and avoid premature exits.
OCO brackets (hands-free risk box)
“One-cancels-the-other” brackets pair a take-profit with a stop-loss so if one executes, the other cancels. Great for setting a complete plan the moment you enter.
Futures specifics: isolate risk and understand liquidation
Leverage amplifies both gains and losses—and introduces liquidation risk. Liquidation happens when your margin balance falls below the maintenance-margin requirement; the exact mechanics and “bankruptcy price” vary by venue. Using isolated margin can confine a mistake to that single position; cross margin shares equity across positions. Learn your platform’s definitions before sizing.
Practical rules of thumb:
- Favor isolated margin for directional trades so one error can’t sweep the whole account.
- Reduce leverage until your liquidation price is comfortably beyond your stop—liquidations are costly and can add fees.
- In live trends, consider stop-market over stop-limit to ensure exits even during sharp moves.
Step-by-step templates (plug in your numbers)
A) Fixed-fraction + stop-market (spot or futures)
- Pick account risk per trade (e.g., 0.75%).
- Decide a technical stop (structure level) or an ATR-based stop (e.g., 2× ATR).
- Compute position size = account risk ÷ trade risk. Place OCO: stop-market and target.
B) ATR sizing + Chandelier trail (trend follow)
- Risk per trade (e.g., 0.5%).
- Initial stop at k×ATR (e.g., 2.5×).
- Position size = account risk ÷ (ATR × k).
- After price makes new highs, trail with a Chandelier Exit to ride trends while capping give-back.
C) Edge-based fraction-Kelly (advanced)
- Estimate win probability and payoff ratio from a large sample.
- Compute Kelly fraction, then use ¼–½ Kelly to control drawdowns and estimation error.
Portfolio-level controls that make sizing work better
- Correlation and concentration matter. Sizing each trade without checking overlap can stack risk. Use correlation as a sanity check when holding multiple crypto positions; correlations fluctuate and can spike in stress.
- Volatility clusters. If ATR is expanding across majors, pre-emptively cut per-trade risk or widen stops and shrink size; crypto research documents persistent clustering.
Common mistakes (and fixes)
- Setting a stop too tight for the regime (stopped out by noise). Fix: base stop distance on volatility (ATR multiple) rather than a flat percent.
- Using stop-limit in a fast dump and not getting filled. Fix: prefer stop-market for guaranteed exit.
- Oversizing futures with cross margin and getting liquidated across the book. Fix: use isolated margin for single-idea risk.
- Relying on full-Kelly from small samples. Fix: fraction-Kelly or plain fixed-fraction until you have robust stats.
Quick reference table
| Task | Practical setting | Why it helps |
|---|---|---|
| Account risk per trade | 0.25–1.0% (spot), less with leverage | Keeps risk of ruin low and drawdowns manageable. |
| Initial stop | Structure level or 1.5–3× ATR | Adapts to volatility and reduces noise stops. |
| Position size (ATR model) | Size = account risk ÷ (ATR × multiple) | Aligns dollars at risk across regimes. |
| Exit logic | OCO bracket (target + stop) | One fills, the other cancels—hands-free discipline. |
| Trend ride | Chandelier Exit trail | Rules-based trailing tied to ATR. |
| Futures safety | Isolated margin; avoid stop-limit in crashes | Limits blast radius; ensures exit. |
FAQ
What’s the simplest sizing model for beginners?
Fixed-fraction (e.g., 0.5–1% of equity at risk per trade) with a stop-market order. It’s platform-neutral and backed by standard investing references.
How do I choose ATR multiples for stops?
Common bands are 1.5–3× ATR depending on timeframe and volatility; pair with ATR-based sizing so the dollar risk stays constant.
Should I ever use stop-limit?
Use it when liquidity is deep and you must control price; understand it may not fill in a violent move. For “must-exit” scenarios, stop-market is safer.
How do OCO brackets help?
They pair take-profit and stop-loss so you predefine both outcomes; if one executes, the other cancels automatically.
Why does isolated vs cross margin matter?
Isolated confines loss to the collateral on that position; cross uses shared equity and can domino losses across positions if volatility spikes.
