How to Manage Risk Per Trade (Position Sizing)
Position sizing made simple: choose a fixed % risk, calculate share size from entry-to-stop distance, and keep losses small and consistent.
Key Takeaways
- •Pick a risk unit (0.5–1% of equity is beginner-safe)
- •Shares = Risk $ / (Entry − Stop) (longs)
- •Consistent risk beats "gut feel" sizing over time
The formula with example
Example:
Account $10,000; risk 1% = $100
Entry $50, stop $48 → risk/share $2 → 50 shares
Why constant risk per trade beats random sizing
Fixed percentage risk allows your edge to compound predictably while preventing any single trade from severely damaging your account.
Volatility-aware stops
Use ATR to avoid noise: stop at 1.5–2× ATR. Recalculate shares accordingly.
Position sizing formula
Shares = Risk $ ÷ (Entry Price - Stop Price)
For long positions
Scaling rules
- •Add only if original stop holds (never widen)
- •If adding, keep total risk ≤ 1–1.5R
Choosing your risk unit
0.5% Risk
Very conservative, good for beginners
1% Risk
Balanced approach for most traders
2% Risk
Aggressive, requires experience
Mistakes to avoid
- •Same share count for every trade regardless of stop distance
- •Increasing risk after losses ("revenge risk")
Create Your Calculator
Create a sizing calculator in your sheet: input entry, stop, risk %, output shares.
Frequently Asked Questions
Is 2% per trade okay?
Aggressive; 0.5–1% is steadier for learning.
Adjust risk after wins?
Keep it constant; let edge show up.