Importance of position sizing

Interesting experiment by Elm Wealth: 118 finance students were given tomorrow’s WSJ front page 24 hours before the news broke. You’d expect easy profits. Instead, half lost money and 16% went completely bust.

It wasn’t because their predictions were wrong. They called market direction correctly 51.5% of the time. That’s better than chance.

The problem? Position sizing.

Many students bet huge portions of their portfolio on a single trade. Some used 20x, even 60x leverage. When they were right, they made money. But when they were wrong they blew up. All it took was a single misstep.

Meanwhile, five experienced traders ran the same simulation. Same info. Very different outcome: +130% average returns. Why? They knew how much to risk. They bet small when uncertain, and big only when the odds were clearly in their favor. That’s the art of position sizing.

Here’s the core lesson: Even if you could predict the future, it wouldn’t save you from poor risk management. Trading isn’t just about being right. It’s about surviving long enough to stay in the game.

Most retail traders obsess over predictions. But smart money obsesses over how much to bet when they think they’re right—and how to protect themselves when they’re wrong.

Because in the markets, being right means nothing if you go bust before you're proven right.