What % of capital should I risk per trade?

Standard professional guideline: 0.5%–2% of capital per trade. Beginners should start at 0.5%, scale to 1% once profitable for 6 months, never exceed 2% on a single idea. At 1% risk per trade, you can lose 10 trades in a row and only be down ~10% — recoverable. At 5% risk, the same losing streak puts you down 40%, requiring a 67% gain to recover. Survival math matters more than aggression.

How do I calculate position size from a stop loss?

Position size (in shares) = (Account capital × Risk per trade %) ÷ Distance to stop in price. Example: ₹5,00,000 capital, 1% risk = ₹5,000 max loss. Stock at ₹500, stop at ₹485 = ₹15 risk per share. Position size = 5,000 ÷ 15 = 333 shares. This guarantees that even if the stop is hit, you lose exactly your predefined risk amount.

Should position size change based on conviction?

Yes, but within tight bounds. Standard sizing for normal setups: 1% risk. High-conviction A+ setups: 1.5-2%. Low-conviction or experimental setups: 0.5%. Never exceed 2% per trade regardless of conviction — your conviction is often wrong, especially when you feel most certain. Variable sizing is a privilege of demonstrated profitability; beginners should size every trade identically until they've earned the right to vary.

Position Sizing: The Most Important Skill in Trading

Most retail traders obsess over entries — which stock to buy, what indicator to watch, what setup to trade. Almost none think systematically about position sizing. This is backwards. Position sizing — how much capital you risk per trade — is mathematically the single largest determinant of long-term outcomes.

You can have a 60% win rate and lose money if your sizing is wrong. You can have a 35% win rate and make money if your sizing is right. This guide covers the math, the standard frameworks, and the discipline.

Why position sizing matters more than entries

Run this simulation: take any trading strategy with a positive expectancy. Apply 5% risk per trade. Then apply 1% risk per trade.

Over 100 trades, the 5% risk version generates higher absolute returns in good runs — but also has dramatically higher drawdowns and a meaningful probability of going to zero. The 1% risk version generates smoother returns, never approaches account-blow-up, and compounds more reliably over time.

The reason: drawdown math is asymmetric. A 50% drawdown requires a 100% gain to recover. A 70% drawdown requires 233%. Most traders giving up did so during recoverable drawdowns made unrecoverable by oversizing.

The fixed fractional method

The simplest and most widely-used framework. Risk a fixed percentage of current account equity per trade.

Standard guideline: 1% risk per trade.

Calculation:

Account equity: ₹5,00,000
Risk per trade: 1% = ₹5,000
Distance from entry to stop loss: in price terms (e.g. ₹15 per share)
Position size: ₹5,000 ÷ ₹15 = 333 shares

Whatever happens, your maximum loss on this trade is ₹5,000. The position size adjusts based on your stop distance.

Why fixed fractional works

Auto-scales with account growth: as equity grows, position sizes grow proportionally
Auto-shrinks during drawdowns: as equity drops, position sizes drop, preserving capital during bad periods
Forces stop-loss discipline: you can't size a position without defining your stop
Survival math is built in: at 1% risk, even 20 consecutive losses leave you down only ~18% — recoverable

The volatility-adjusted alternative

Fixed fractional has a weakness: it assumes all setups are equivalent. A trade with a tight stop on a quiet stock is very different from a trade with a wide stop on a volatile one.

Volatility-adjusted sizing accounts for this:

Calculate Average True Range (ATR) for the asset over 14 periods
Set stop distance as a multiple of ATR (e.g., 2x ATR)
Apply standard fixed fractional sizing

Result: more volatile assets get smaller position sizes (because their stops are wider), less volatile assets get larger sizes. Your dollar risk per trade stays constant.

This is the standard institutional approach for systematic strategies.

Position sizing in practice

Step 1: Define total account risk budget

Before each trading session, decide your maximum allowable open risk across all positions. Standard rule: 4-6% of capital max in concurrent open trades.

Example: ₹5,00,000 account, 4% max open risk = ₹20,000 max risk across all positions. With 1% per trade, that's max 4 concurrent positions.

Step 2: Define daily loss limit

The amount that, if lost in a single day, you stop trading and walk away. Standard: 3% of capital.

Example: ₹15,000 daily loss limit. After 3 stops out, you're done for the day. This prevents revenge trading and emotional spirals.

Step 3: Per-trade sizing

For each trade:

Identify entry and stop loss based on the chart
Calculate distance in price terms
Apply formula: Risk amount ÷ Stop distance = Position size
If position size requires margin, ensure margin is available

Step 4: Reduce size in losing streaks

Aggressive but advisable: after 3 consecutive losses, reduce per-trade risk to 0.5% until you have 2 winning trades in a row. This prevents catastrophic drawdowns during cold streaks (which happen to every trader).

Step 5: Increase size only after demonstrated profitability

Don't move from 1% to 1.5% risk per trade until you've shown 6 consecutive months of profitability. Don't move beyond 2% ever — the marginal aggression isn't worth the survival risk.

Position sizing rules by trader type

Trader Type	Standard Risk	Max Open Risk
Beginner (< 6 months)	0.5%	2%
Intermediate (6-24 months)	1%	4%
Experienced (2+ years profitable)	1-2%	6%
Professional / fund	0.5-1% (lower bar; more positions)	10%

Note: experienced doesn't mean larger sizing. Many top traders dial down risk per trade as accounts grow because absolute drawdowns become psychologically harder to handle.

What about leverage?

Leverage doesn't change your risk per trade — it changes the capital you have at risk for the same exposure. Position sizing logic remains the same: define your stop, calculate your risk, size accordingly.

The danger of leverage is that it allows you to oversize without realizing it. A 1% risk on a 10x leveraged position effectively risks 10% of underlying capital if the stop fails. Cap leverage at 3-5x even when more is available.

Common mistakes

No defined stop: "I'll exit when it feels wrong" — impossible to size a position you can't quantify
Round-number positions: buying 100 shares because it's a round number, regardless of what 100 shares actually risks
Sizing by conviction: betting big on the trade you "really believe in" — these are statistically your most overconfident bets
Adding to losers: averaging down, increasing risk on a position moving against you. Mathematically a fast path to ruin
No daily/weekly cap: trading until you're emotionally spent, not until you've hit a structured limit
Sizing for income, not survival: needing each trade to make ₹10,000 because you "need the income" — this is the mindset that destroys accounts

What to read next

Risk-reward ratio in trading — the other half of expectancy.
Trading psychology — the discipline to actually follow your sizing rules.
How leverage works in trading — sizing under leverage.
Common trading mistakes — most are sizing-related.

Position sizing isn't glamorous. It's the unsexy discipline that separates traders who compound for decades from those who blow up in months. Master it before you ever worry about a new entry strategy. Properly sized losers don't end careers; oversized winners followed by oversized losers do.