12.3What is position sizing?
1What is it?
Position sizing decides how many shares to buy so that, if your stop is hit, you lose only a fixed % of your capital (often 1–2%).
2Why does it exist?
It is the single most important risk tool. With proper sizing, even 10 losses in a row won’t ruin you.
3Calculation
Shares = (Capital × Risk %) ÷ (Entry − Stop)
- Capital ₹1,00,000; risk 1% = ₹1,000.
- Entry ₹500; stop ₹480 → risk per share ₹20.
- Shares = ₹1,000 ÷ ₹20 = 50 shares (₹25,000 position).
Buy 50 shares. If stopped out, you lose about ₹1,000 (1%).
4Quick revision
- Size from stop distance and risk %.
- 1–2% risk per trade is common.
- Position value ≠ risk.
5Knowledge check
Q1. Capital ₹50,000, risk 2%, entry ₹200, stop ₹190. Shares?Show answer
₹1,000 ÷ ₹10 = 100 shares.
Q2. Wider stop → more or fewer shares?Show answer
Fewer.
Q3. After 10 losses at 1% each, roughly how much is left?Show answer
About 90% (₹90,438 of ₹1 lakh).