Risk & Position Sizing
How much to put in one trade — the math that keeps accounts alive.
The one rule professional traders live by
Position sizing formula
Once you know your entry price and your stop-loss price, you can calculate exactly how many shares to buy:
Example: ₹10,000 risk, entry ₹500, stop ₹480 → Quantity = 10,000 ÷ 20 = 500 shares
Position sizing — 1% risk rule vs over-betting after 10 losses
Why this matters more than which stock you pick
Most traders obsess over finding the "right" stock and ignore how much they're betting. But position sizing is what determines whether a string of losses is survivable.
Trader A — proper sizing (1% risk per trade):
Portfolio ₹10L. After 10 consecutive losses: ₹9L remaining. Still operational.
Trader B — no sizing rules, bet 20% per trade:
Portfolio ₹10L. After 5 consecutive losses (which DO happen): ₹3.28L remaining.
A recovery now requires a 200%+ gain just to break even.
The strategy was the same. Position sizing decided who survived.
A practical sizing example
| Strategy type | Sample capital | Per-position sizing |
|---|---|---|
| Monthly equity picks (8 stocks) | ₹10 lakh | ₹1.25L per stock |
| Weekly options (1 lot) | ₹5 lakh | Margin per lot |
| Commodity trend-follow | ₹1–2 lakh | 1 mini lot margin |
The drawdown reality
Even a good strategy has drawdown periods — stretches where the account value falls before recovering. A quality+momentum equity strategy backtested over 8 years (including the COVID March 2020 crash) can experience drawdowns of 30–40% before recovering to new highs. Knowing your strategy's historical drawdown in advance — from the backtest — is what lets you hold through it instead of panic-selling at the bottom.
- Risk at most 1–2% of your total capital on any single trade.
- Quantity = (Rupees to risk) ÷ (Entry − Stop). Do the math before every trade.
- Position sizing determines if you survive a losing streak — not which stock you pick.
- Expect drawdowns. Even a 20% CAGR strategy will have 30–40% drawdown stretches.