How do I set a stop loss?

Place stops at technical levels like support, below recent lows, or using ATR. Avoid arbitrary round numbers that others might target.

Position Size Calculator | Risk Management Tool

What is Position Sizing?

Position sizing is a critical risk management technique that determines how many shares or contracts to trade based on your account size and risk tolerance. Rather than buying arbitrary amounts, proper position sizing ensures that each trade risks a consistent percentage of your portfolio, protecting you from catastrophic losses.

The key insight is that position size should be determined by your risk, not by how much you want to invest. A tighter stop loss allows for larger positions, while a wider stop requires smaller positions to maintain the same dollar risk.

How to Use This Calculator

Enter your total account/portfolio size
Set your risk percentage per trade (1-2% recommended)
Enter your planned entry price for the stock
Set your stop loss price based on technical analysis
Optionally add a target price to see risk/reward ratio

The Position Size Formula

Position Size Formula

Shares = Risk Amount ÷ (Entry − Stop Loss)

Risk Amount Account × Risk %

Position Value Shares × Entry Price

Why Use Position Sizing?

Consistent position sizing is what separates professional traders from amateurs:

Survive losing streaks without devastating your account
Remove emotion from trade sizing decisions
Maintain consistent risk across all trades regardless of conviction
Compound gains efficiently over time
Sleep better knowing your max loss is predetermined

The 2% Rule Explained

The 2% rule states that you should never risk more than 2% of your account on any single trade. With this approach, you would need 50 consecutive losing trades to lose your entire account - a near impossibility with any reasonable strategy. Many professional traders use 1% or even 0.5% for additional safety margin.

Frequently Asked Questions

What percentage should I risk per trade?

Most professional traders risk 1-2% per trade. Beginners should start with 0.5-1%. This ensures you can survive losing streaks while still growing your account. Never risk more than you can afford to lose on any single trade.

What is a good risk/reward ratio?

A minimum of 1:2 is recommended, meaning potential profit is at least twice the potential loss. Many traders aim for 1:3 or higher. With a 1:2 ratio, you only need to win 34% of trades to break even, making profitable trading more achievable.

How do I set a proper stop loss?

Place stops at technical levels like support zones, below recent swing lows, or using ATR (Average True Range). Avoid arbitrary round numbers that market makers might target. Your stop should be placed where your trade thesis is invalidated.

Should I adjust position size based on conviction?

While tempting, varying position size based on conviction can be dangerous. High conviction trades can still lose. Most professionals maintain consistent position sizes regardless of conviction, letting the risk/reward ratio and stop placement vary instead.

What if the calculated position is too large for my account?

If the position requires more capital than you have, either widen your stop loss (reducing position size needed) or skip the trade. Never use more than your available capital or use excessive leverage to force a position. Capital preservation is paramount.

Position Size Calculator