Position sizing is the strategy of determining the appropriate amount of capital to allocate to each investment based on your total portfolio value, risk tolerance, and the asset's volatility. Proper position sizing ensures no single trade can destroy your portfolio and allows you to survive inevitable drawdowns without forced liquidations or emotional panic selling. Most professionals limit individual positions to 2-10% of total portfolio value, with higher allocations reserved for lower-volatility assets like Bitcoin.
Example:
You have a $100,000 portfolio and want to buy a high-risk altcoin that could 10x or go to zero. Proper position sizing means allocating only $2,000-$5,000 (2-5%) to this speculative play. If it goes to zero, you lose 5% of your portfolio, which is painful but survivable. If it 10xs, your $5,000 becomes $50,000, turning your $100,000 portfolio into $145,000 (45% total gain). Contrast this with putting $50,000 (50%) into the altcoin: If it fails, you've lost half your wealth and may never recover psychologically or financially.