What is a common mistake associated with position sizing?

Over-leveraging based on a high-risk appetite is a common mistake in position sizing because it can significantly increase the potential for losses. When a trader has a strong desire to make substantial profits, they may fail to adequately assess the risks associated with their trades, leading them to invest a larger portion of their capital than is advisable. This can result in significant drawdowns if the market moves against them, jeopardizing their financial stability and longevity in trading.

In effective position sizing, it is crucial to align the size of each trade with the trader's total capital and risk tolerance. Proper position sizing allows traders to manage their risk effectively, ensuring that they do not expose themselves to the potential for devastating losses, which could occur when over-leveraging driven by an aggressive approach to trading. Balancing risk and reward is essential for long-term success and sustainability in trading.