Portfolio-Level Position Sizing

The two-layer system

Layer 1 (strategic): how much of the portfolio belongs to each ASSET CLASS (stocks/bonds/cash — day 48). Layer 2 (tactical): within the stock sleeve, how much per POSITION. Rules of thumb that survive contact with reality: no single stock > 5–10% of the portfolio (one company's fraud cannot destroy you); no single sector > ~25–30% (one macro driver cannot destroy you); the whole equity sleeve sized so its worst historical drawdown is survivable (day 32).

Conviction vs sizing

Higher conviction justifies larger size — but conviction must EARN the size: more analysis (days 15–21), a longer track record with the setup type, and a tighter thesis. The dangerous pattern: size creeps up with familiarity ("I know this company") while the analysis never deepened. Familiarity is not edge; it is comfort.

The scaling plan

Professionals scale IN: partial entry at the planned level, adds only at pre-planned levels with the thesis intact, full size only when the trade proves itself (e.g., breaks above entry). Scaling OUT mirrors it: partial profits at targets, trail the rest. Both convert the all-in/all-out binary — where timing luck dominates — into a distribution of entries/exits.

Sources

• Position SizingInvestopedia
• Trade Your Way to Financial FreedomVan K. Tharp