Position sizing
Position sizing is deciding how many shares or contracts to buy so that a losing trade costs you an amount you chose in advance.
In depth
Work backwards from the loss. Say your account is 10,000 dollars and you risk 1 percent, so 100 dollars. You buy at 50 and your stop sits at 48, which is 2 dollars of risk per share. Divide 100 by 2 and you buy 50 shares. Put the stop at 49 instead and the same 100 dollars buys 100 shares.
Size follows the stop, so the stop has to come from the chart rather than from whatever number gives you the size you wanted. If the chart asks for a wide stop, you buy less. That is the trade being honest with you about what it costs to be wrong.
Why it matters
Without a sizing rule, your worst trade is whatever you felt like that morning. One oversized position can undo a month of careful work. Fixed sizing also keeps losses similar in size, so you can compare setups against each other instead of against one huge loss.
TraderLog has a free position size calculator: enter your account, your risk percent, your entry and your stop. Afterwards the stats page shows results by symbol and by tag, and the automatic tags flag trades where your size jumped after a loss.
Frequently asked questions
One to two percent of the account is common. Smaller is fine while you are still learning.
You cannot. Pick the price that proves the idea wrong first, then the share count falls out of it.
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