Position Sizing

Position sizingis the decision of how many shares, lots, or contracts to take on a single trade. It’s the most under-rated skill in retail trading because it’s less fun than picking entries - but it’s what separates survivable accounts from blown ones. A great entry with terrible sizing still kills you. A mediocre entry with correct sizing survives indefinitely.

The dominant retail method is fixed fractional risk: decide what percentage of your account you’re willing to lose on a single trade, then size the position so that if your stop hits, you lose exactly that amount. Most pros use between 0.5% and 2% per trade. New traders should start at the lower end.

Why fixed-fractional beats fixed-quantity

A trader who always buys “1 lot” or “100 shares” takes wildly different amounts of risk depending on the stop distance. A ₹50 stop is 5× the risk of a ₹10 stop at the same quantity. Fixed-fractional sizing fixes this: the rupee risk per trade stays constant, and the position size adjusts to match the stop.

Compounding cuts both ways

Because you’re sizing as a % of the current account, winners get progressively larger (1% of ₹6,00,000 > 1% of ₹5,00,000) and losers get smaller. The downside: a 25% drawdown means each subsequent trade is sized 25% smaller, slowing the recovery. That’s a feature, not a bug. It’s the math protecting you from revenge-trading.

When to deviate

Half-size when testing a new setup. Half-size after three losses in a row (some traders prefer this rule, some prefer to push through - both are defensible). Never double-sizeafter a winning streak. That’s how good months become catastrophic ones.