Position Sizing
Position sizing decides how much money goes into each trade, so that a string of losses never does serious damage.
- Decide how much you are willing to lose on the trade first, then work out the quantity.
- Quantity = (capital × risk %) ÷ (entry price − stop loss).
- Small risk per trade keeps a losing streak survivable.
A worked example
Capital ₹5,00,000 and a risk of 1% per trade means you accept a loss of ₹5,000 if the stop is hit. If you buy at ₹500 with a stop loss at ₹475, the risk per share is ₹25, so the quantity is 5,000 ÷ 25 = 200 shares, a position of ₹1,00,000. A wider stop means fewer shares; a tighter stop means more.
Why it matters more than the entry
Every method has losing streaks. Ten losses in a row at 1% risk each leave the account down about 10%. At 5% risk each, the same streak costs about 40%, which then needs a 67% gain to recover. The entry signal decides how often you win; position size decides whether you survive the losing spells.
Adjusting size to the market
Some traders cut size when conditions are weak, for example when market breadth is poor or volatility is high, and use full size only in healthier markets. The Market Sentiment page shows the rule I follow for my own trading, shared for education.
Common mistakes
- Deciding the quantity first and placing the stop wherever it fits.
- Moving the stop further away once the trade goes wrong.
- Forgetting gaps: a stock can open below your stop, so the real loss can be larger.
Common questions
What is the 1% rule in trading?
Risk no more than 1% of your capital on any single trade, meaning the loss if the stop loss is hit is at most 1% of the account.
How do I calculate position size?
Quantity = (capital × risk %) ÷ (entry price − stop loss price). The position size calculator does this and shows the money needed.
Is 2% risk per trade too much?
It depends on your method and losing streaks. At 2%, ten losses in a row cost about 18%. Many traders keep risk between 0.5% and 1%.