- Risk amount = capital × risk % per trade
- Quantity = risk amount ÷ (entry price − stop-loss price)
Why position size matters more than entries
Every trader has losing streaks. Five or six losses in a row are normal even for a good strategy. If each loss costs 10% of your capital, a bad week can cut your account in half. If each loss costs 1%, the same streak costs about 6%, and you are still in the game. Survival is what gives a good strategy the time to work.
The 1% rule
Decide the maximum you will lose on any one trade before you choose the quantity. Many traders use 1% of capital or less; beginners often use 0.5%. This is not the amount you invest. It is the amount you lose if the stop-loss is hit.
Worked example (equity)
| Step | Value |
|---|---|
| Capital | ₹2,00,000 |
| Risk per trade (1%) | ₹2,000 |
| Entry price | ₹500 |
| Stop-loss (below support) | ₹490 |
| Risk per share | ₹10 |
| Quantity | ₹2,000 ÷ ₹10 = 200 shares |
If the stop is hit, you lose ₹2,000, exactly what you planned. If your stop needed to be ₹25 away, the quantity would drop to 80 shares. The stop decides the size, not the other way around.
For options and futures
Derivatives trade in lots, so you cannot always hit the exact quantity. Work out the loss per lot at your stop-loss and take only as many lots as keep the total loss within your risk amount. If even one lot risks more than your limit, the trade is too big for your account; skip it or choose a lower-risk structure.
Risk-reward: the other half
Aim for setups where the target is at least twice the distance of the stop (1:2). With 1:2, you can be wrong more than half the time and still come out ahead:
- 10 trades, 4 winners at +₹4,000 each = ₹16,000
- 6 losers at −₹2,000 each = −₹12,000
- Net: +₹4,000 before costs, with only a 40% win rate.
Placing the stop-loss
- Put it where your trade idea is proven wrong, usually just beyond a support or resistance zone.
- Give it a buffer for normal noise. Many traders use 1 to 1.5 × ATR (average true range).
- Never widen a stop after entering to avoid taking the loss.
Daily and weekly loss limits
Set a hard stop for the day too, for example 2% to 3% of capital. When you hit it, stop trading for the day. Most account blow-ups come from revenge trading after two or three losses, not from a single trade.
Checklist before every trade
- Entry, stop-loss and target are written down.
- Loss at the stop is within 1% of capital.
- Reward is at least 2 × risk.
- Today's loss limit has not been hit.
- Expiry date and holidays checked on the Expiry Tape for derivative trades.
For education only. This is not investment advice or a recommendation to buy or sell any security. Abhimanyu Traders is not a SEBI-registered investment adviser. Trading in equities and derivatives involves risk of loss.