Most traders think position sizing is just about how many contracts you trade. But there's a second variable that's equally important — and most people completely ignore it: where you enter relative to your reference price.
Buying discounts is how you reduce your actual risk on every trade without changing your contract size. It's how you save hundreds of dollars on losing trades and make hundreds more on winners. Here's exactly how it works.
The Concept: Position Size Is a Constant
Michael's approach flips the typical thinking: "I'm determining my position sizing based off of the difference between the reference price and the stop loss. And then looking to buy a discount relative to that while not changing my units."
Your position sizing is calculated from the reference price. That's your constant. But your actual entry? That's where you create edge.
A Practical ES Example
"Let's pretend we have a setup to the downside. I'm going to pick a reference price — let's say it's 6404. My stop loss is 6408.50."
Running the math: "Four contracts is far too much. I simply can't risk that much. It would have to be a two-contract play based on what the risk is for that specific trade."
So with two contracts and a reference price of 6404 against a stop of 6408.50, the risk is $450.
Now here's where the discount comes in: "What I remember is that at 6404, my risk was $450. So I know that if I get a sell order that's above this 6404, I'm buying a discount relative to the risk I have associated with that trade."
"If I bought at 6405.75, all of a sudden my risk is $275. I've saved myself $175."
Same trade. Same setup. Same stop loss. $175 less risk. That's the power of buying discounts.
An NQ Example
The numbers get bigger with NQ because each point is $20:
"Reference price is $23,340. Stop loss is $23,328. With one contract, my risk is $240. With two contracts, I'd be risking $480."
"If I can buy even two points lower, I'm saving 20% on this trade. If I can buy at $335 instead of $338, all of a sudden I'm shaving $210 off my total risk."
On NQ, a few points of discount can mean hundreds of dollars saved per trade.
How It Changes Your Risk Profile
The beauty of this approach is that it only improves your math:
- When you win: You entered deeper, so your profit is larger
- When you lose: You entered deeper, so your loss is smaller than the calculated maximum
- Your position size stays the same: No additional risk from adding contracts
"My position sizing here is a constant based off of the reference price. And then once I establish the risk for that trade, I'm then looking to basically just purchase a discount relative to that idea."
The Practical Execution
Once you've set your reference price and stop loss in your order window:
- Calculate your max risk at the reference price — this determines your contract count
- Keep that contract count fixed
- Watch for price to pull into the reference zone
- Enter as deep below the reference price as possible
- Every tick better than the reference price is money saved
You don't change your sizing if you get a great entry. The discount is pure bonus — less risk if wrong, more profit if right.
Why This Creates an Asymmetric Edge
Think about what happens over 100 trades:
If you save an average of $100 per trade through buying discounts, that's $10,000 saved on your losing trades alone. On winning trades, that same $100 discount means $10,000 more in profit. Over a month of active trading, the compounding effect of consistently better entries is enormous.
"The deeper pullback I can buy, the smaller my loss is going to be. That's effectively how I'm able to keep some of my losses smaller."
The Mindset Shift
This technique requires a subtle but important shift in how you think about entries. You're not chasing the trade. You're not waiting for confirmation that it's "going your way." You're waiting for the scariest moment — when price is pulling toward your stop — and entering there.
That's uncomfortable. It goes against every instinct. But it's where the edge lives.
Key Takeaways
- Position size from the reference price — that's your constant, calculated before the trade
- Buy discounts relative to that reference — every tick below it reduces your risk
- Don't change your contract count — the discount is pure edge, not a reason to size up
- A few points of discount saves hundreds — especially on NQ where each point is $20
- Same stop loss, better entry = asymmetric payoff — less risk on losers, more profit on winners
- This compounds over hundreds of trades — small savings become massive over time
- Enter when it feels scariest — that's where the best discounts live
Get Funded and Execute With Precision
At DayTrader Funding, precise entries separate the traders who keep their accounts from those who don't. Master the discount technique and make every entry work harder for your bottom line.