Stock Market · Risk Management & Psychology

Position sizing

Position sizing is the single most important decision in any trade. It determines how much you can lose if you're wrong, and in trading, you'll be wrong often.

The 2% rule

Never risk more than 2% of your total capital on a single trade.

Example: ₹5,00,000 capital. Maximum risk per trade = ₹10,000.

If your stop loss is ₹50 below entry, position size = ₹10,000 / ₹50 = 200 shares.

> The 2% rule is not about your trade idea. It's about surviving the inevitable string of losses.

Why 2%?

With 2% risk per trade, you can have 20 consecutive losing trades and still preserve 67% of your capital. Recoverable.

With 10% risk, 20 losses wipe you out completely.

The formula

Position size = (Account size × Risk %) / (Entry − Stop loss)

Account ₹5,00,000 × 2% = ₹10,000 max loss.

Entry ₹500. Stop ₹480. Risk per share = ₹20.

Position size = ₹10,000 / ₹20 = 500 shares.

For F&O. The same math applies

Calculate risk based on stop loss in points × lot size.

Don't trade more lots than your 2% rule allows, even when you 'feel sure'.

2% rulethe floor of survival

1% ruleif you're newer or more cautious

5%+aggressive territory, ruin is statistically likely

Takeaway. The 2% rule limits any single loss to 2% of capital. Calculate position size by dividing max-rupee-loss by per-share stop distance. Never override the rule. Survival is the prerequisite to compounding.