Most traders spend years perfecting their strategy, tweaking indicators, and hunting the “holy grail” setup. But here’s a brutal truth:
Even the best strategy fails if your position sizing is wrong.
You don’t lose money in trading because of a bad setup. You lose because you bet too much on the wrong trade and too little on the right one.
“Risk management is the most important thing to be well understood. Under-trade, under-trade, under-trade is the secret to survival.” — Paul Tudor Jones
A Lesson From Two Traders
Rahul and Ankit both started trading with ₹1 lakh. Rahul risked ₹10,000 per trade because “this setup can’t fail.”
Three trades later, he had lost 30% of his account. Every new trade now felt like a gamble, driven by desperation to recover.
Ankit, on the other hand, risked only 1% (₹1,000) per trade. After 20 trades, even with a 50% win rate, his account was down only 5%. He was still calm, still learning, and still had the capital to keep going.
Same market. Same setups. Different position sizing = different destiny.
Why Position Sizing Matters More Than Entry and Exit
- It keeps your account alive long enough to learn and grow.
- It ensures one bad trade won’t wipe you out.
- It allows winning trades to compound instead of simply recovering losses.
Think of trading like poker — even with a strong hand, you don’t go “all-in” every time. You manage your chips to stay in the game.
Case Study: How Ed Seykota Turned $5,000 Into $15 Million
Ed Seykota, one of the legendary Market Wizards, didn’t just rely on smart entries. His real edge came from risk control.
He risked as little as 0.5–1% per trade. Even during losing streaks, his account barely took a hit.
“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” — Ed Seykota
Different Models of Position Sizing
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Fixed Rupee Risk Model
Risk a fixed ₹ amount per trade (e.g., ₹1,000). Keeps losses consistent and simple for beginners. -
Percentage of Account Model
Risk a % of account balance (e.g., 1–2%). Adapts as account grows or shrinks; widely used by professionals. -
Volatility-Based Position Sizing
Adjusts risk based on ATR (Average True Range). Safer for swing traders, avoids oversized positions in volatile stocks. -
Kelly Criterion
A mathematical formula to maximize long-term growth. Aggressive but efficient; requires accurate win rate and payoff data. -
Van Tharp’s R-Multiple Model
Risk 1R per trade and aim for 2R or 3R. Perfect for building consistency and defining risk before entry.
How to Calculate Position Size (Simple Formula)
Formula:
Position Size = Account Risk ÷ (Entry Price – Stop Loss)
Example:
- Account = ₹1,00,000
- Risk per trade = 1% = ₹1,000
- Entry = ₹500, Stop = ₹480 (₹20 risk per share)
Position Size = ₹1,000 ÷ ₹20 = 50 shares
With this, no single trade can hurt you beyond your chosen risk limit.
Tips for Effective Position Sizing
- Start with 1% risk while learning.
- Never increase size after a loss — avoid revenge trading.
- Keep % risk consistent, not absolute ₹.
- Don’t risk more on “gut feel” trades.
- Combine with journaling to refine over time.
📌 Pro Tip: Track your trades with the TradInvest Journal →
When Position Sizing Saved a Trader in a Crash
Priya, a part-time trader, stuck to her 1% rule. When the market dropped 12% in three days, she lost only 4% because her stops and sizing worked.
Her friend, risking 10% per trade, blew 50% of his account. Same market, opposite outcomes — all because of position sizing.
Myths About Position Sizing
-
Myth: “I’ll increase size on strong trades.”
Truth: Even “perfect setups” fail. Keep risk consistent. -
Myth: “I can double my account faster with big size.”
Truth: You’ll blow up faster too. -
Myth: “Stop losses are enough.”
Truth: Stops limit loss per share; sizing limits loss per trade.
How TradInvest Makes Position Sizing Effortless
- Built-in position sizing calculator — enter entry & stop, get exact quantity.
- Risk dashboard showing total exposure.
- Journal integration to refine sizing over time.
- Models for both swing and intraday traders.
“Take care of your losses and the profits will take care of themselves.” — William O’Neil
❓ Frequently Asked Questions
Q: What is the best position sizing model for beginners?
A: Start with the Fixed Rupee Risk or Percentage of Account model to keep losses consistent and manageable.
Q: How much should I risk per trade?
A: Most professional traders risk between 0.5%–2% of their account on any single trade.
Q: Can position sizing improve win rate?
A: Position sizing doesn’t change your win rate, but it improves consistency and protects capital, which helps long-term profitability.
Final Takeaway
You don’t blow up accounts because of bad trades — you blow up because of bad position sizing.
Start using the built-in calculator inside TradInvest to protect your capital while you grow it.
