Most new traders spend their time looking for the perfect entry. Experienced traders spend it on a less exciting question: how much should I risk on this trade? Position sizing decides whether a losing streak is a small setback or the end of your account.
The 1% rule
A common guideline is to risk no more than 1–2% of your trading capital on a single trade. “Risk” here means the amount you lose if your stop-loss is hit, not the total value of the position.
With ₹1,00,000 in capital and a 1% rule, the most you should lose on one trade is ₹1,000.
How to calculate position size
- Decide your risk per trade in rupees (capital × risk %).
- Find the distance between your entry and stop-loss, per share or per unit.
- Divide the rupee risk by that distance. The answer is your quantity.
Example: Capital ₹1,00,000, risk 1% = ₹1,000. You want to buy at ₹500 with a stop-loss at ₹490, so the risk per share is ₹10. Position size = ₹1,000 ÷ ₹10 = 100 shares.
Notice that the stop-loss decides the quantity, not the other way round. A wider stop-loss means fewer shares; a tighter one allows more.
Why this matters
If you risk 1% per trade, ten losses in a row cost you about 10% of your capital. If you risk 10% per trade, the same streak can wipe out most of your account. Losing streaks happen to every trader, so the goal is to survive them.
Risk-reward: the other half
Position sizing controls how much you lose. Risk-reward controls how much you can make. If you aim for targets that are 2x or 3x your risk, you can be profitable even when fewer than half of your trades work. Always include brokerage, taxes and slippage in your calculations.
Make it a habit
Write your risk per trade down and calculate the quantity before every order. Our free Trader Risk Checklist walks you through it step by step.
Dravyam Lotus shows the stop-loss and four targets at 3x, 5x, 7x and 10x of the risk for every setup, which makes this calculation quicker. Compare Dravyam indicators →
For education only. Not investment advice. Trading involves substantial risk of loss. Full disclaimer.