How can I set the position size?

<p id="isPasted">Position sizing is a critical risk management strategy used to determine the appropriate number of shares, contracts, or units of a security to trade. It is calculated based on your total trading capital, the amount of money you are willing to risk on a single trade, and the distance between your entry price and your stop-loss price.</p><p><strong>Steps to Determine Your Position Size</strong></p><p>You can calculate your position size using the following steps:</p><ul><li>Determine Your Total Trading Capital: Start with the total amount of money in your trading account. For example, INR 50,000.</li><li>Define Your Risk Tolerance Per Trade: Decide on the maximum percentage of your total capital you are willing to lose on any single trade. A common recommendation is to risk no more than 1% to 2%.</li><li>Calculation: 1% of INR 50,000 is INR 500. This is your maximum monetary risk per trade.</li><li>Identify Your Entry and Stop-Loss Prices:</li><li>Entry Price: The price at which you plan to execute the trade (e.g., INR 100).</li><li>Stop-Loss Price: The predetermined price at which you will exit the trade to limit your losses if the market moves against you (e.g., INR 95).</li><li>Calculate the Risk Per Share/Unit: Find the difference between your entry and stop-loss prices.</li><li>Calculation: INR 100 (Entry) - INR 95 (Stop-Loss) = INR 5 risk per share.</li><li>Calculate the Position Size (Number of Units): Divide your total monetary risk per trade by the risk per share.</li><li>Calculation: INR 500 (Total Risk) / INR 5 (Risk Per Share) = 100 shares.</li></ul><p><strong>Why Position Sizing Matters</strong></p><p>Proper position sizing is the cornerstone of effective risk management.</p><ul><li>Protects Capital: It prevents a single bad trade from significantly damaging your trading account.</li><li>Ensures Longevity: By limiting losses, you ensure you have enough capital to continue trading and benefit from winning streaks.</li><li>Manages Volatility: It allows you to adjust your trade size based on the volatility of the specific security you are trading. A more volatile stock requires a smaller position size to maintain the same monetary risk level.</li></ul><p><br></p>