What is Position Sizing

English · 3:23 · Published 2026-10-28

Where to put the stop, the 1% risk rule, how many shares to buy and thinking in R.

What the video says

Two traders buy the same stock, at the same price. One loses a little. The other loses a lot. The difference is not the stock. It is how much they bought, and where they planned to get out.

Before you buy anything, decide two things. Where you will exit if you are wrong. And how much you can afford to lose if that happens.

The exit is your stop-loss. Put it at a level that proves the idea wrong. For example, below the last contraction of a VCP, below the bottom of a Darvas box, or below a key moving average.

Not at a random number like five percent. The chart decides the stop, not your comfort.

Next, your risk per trade. Most swing traders risk between half a percent and two percent of their capital on one trade. Say, one percent.

With ten lakh rupees of capital, one percent risk means you can lose ten thousand rupees on this trade, and no more.

Now the formula. Position size equals the amount you can risk, divided by the distance from your entry to your stop.

An example. Entry at five hundred, stop at four sixty. That is forty rupees of risk per share. Ten thousand divided by forty is two hundred and fifty shares.

If the stop is tighter, say four eighty, the risk per share is only twenty, so you can buy five hundred shares. Same rupee risk, bigger position. That is why tight setups are so valuable.

Why does this matter so much? Look at a losing streak. Risking ten percent per trade, five losses in a row wipe out forty one percent of the account. Risking one percent, the same streak costs under five percent.

And losses are hard to recover from. A ten percent loss needs eleven percent to get back. A fifty percent loss needs a full hundred percent.

Think in R. One R is the amount you risk. If you risk ten thousand and make thirty thousand, that is a three R trade. With wins of two to three R, you can be right less than half the time and still make money.

And the hardest rule of all. Once the stop is set, never move it lower. A small planned loss is part of the business. A big unplanned loss can end it.

On Market Strength, every chart has a Position size card. Enter your capital and risk percent, set the entry and the stop, and it shows the number of shares, the rupee risk, and the two R and three R targets.

Then log the trade in one click to your Trade Journal, which tracks your win rate, average R and profit factor over time.

Market Strength is an education and research tool, not investment advice.

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