The Difference Between Risk Tolerance and Risk Capacity

Risk tolerance is how comfortable I feel with uncertainty and potential losses.

Risk capacity is how much financial loss I can realistically withstand without damaging my financial situation.

They aren't the same.

I might feel comfortable taking a large position, but that doesn't mean my finances can support the downside.

Position sizing should consider account limits, personal circumstances, and the strategy's risk.

Feeling brave is not a substitute for being financially prepared.