The number one reason traders blow up their accounts is not "bad strategy" but incorrect position sizing. If you buy too many shares, a single small drop in the market can wipe out 10% or 20% of your capital.
Position Sizing answers the most critical question in trading: "How many shares should I buy so that even if my Stop Loss hits, I only lose a small amount (like 1%) of my portfolio?"
Guide Highlights:
1. Gambler vs Trader: A Scenario
Let's compare two traders who both have ₹1,00,000 capital and take a trade with a ₹10 Stop Loss.
| Feature | Trader A (Gambler) | Trader B (Professional) |
|---|---|---|
| Strategy | Buys Random Quantity (e.g., 2000 shares) | Calculates Risk First (e.g., 100 shares) |
| If Stop Loss Hits | Loss: ₹20,000 (20% of Capital!) 😱 | Loss: ₹1,000 (Only 1% of Capital) ✅ |
| Result | Panic & Emotional Trading | Calm & Ready for Next Trade |
Trader A is destroyed after 5 bad trades. Trader B can survive 100 bad trades in a row!
2. The Golden 1% Rule
Professional traders never risk more than 1% or 2% of their total trading capital on a single trade.
The Rule
"I will position my trade size such that if my Stop Loss is hit, I do not lose more than 1% of my total account balance."
3. The Mathematical Formula
How do we calculate the exact quantity to achieve this safety? The math is simple but powerful.
Total Risk = Total Capital × Risk % (e.g., ₹1 Lakh × 1% = ₹1,000)
Risk Per Share = Entry Price - Stop Loss Price
Quantity = Total Risk / Risk Per Share
4. How to use our Position Size Calculator?
In a live market, you cannot sit with a pen and paper. Use our tool for instant results:
- Account Capital: Enter your total trading balance (e.g., ₹5,00,000).
- Risk Percentage: How much are you willing to lose? (Recommended: 1% or 2%).
- Entry Price: At what price are you buying?
- Stop Loss Price: Where will you exit if wrong?
The tool will instantly tell you:
- Exact Quantity to buy.
- Total Capital Required for the trade.
- Max Loss Amount (It will match your 1% limit).