For every successful trader, there’s a secret weapon that has nothing to do with picking winning stocks. It’s the skill that keeps them in the game long after others have failed: powerful risk management.

Without a solid plan to control losses, even a winning strategy can lead to a wiped-out account. This guide will not only explain the core principles of risk management but also provide you with an interactive calculator to apply them to every single trade.

What is Position Sizing and Why Does It Matter?

Position sizing is the process of deciding how many shares of a stock to buy. It’s not a random number; it’s a precise calculation based on how much of your capital you are willing to risk on one trade. Getting this right is the difference between trading like a professional and gambling.

The Core Components of a Trade

To calculate your position size, you need to define these four variables before you even think about clicking the “buy” button:

• Total Account Capital (₹): The total value of your trading account.
• Risk per Trade (%): The percentage of your capital you’re willing to lose. Most professional traders never risk more than 1-2% on a single trade.
• Entry Price (₹): The price where you intend to buy the stock.
• Stop-Loss Price (₹): The price where you will sell to exit the trade if it moves against you. This defines your loss.

Putting It All Together: A Step-by-Step Example

Let’s see how the calculator works with a practical example:

• You have ₹2,00,000 in your account.
• You decide to risk 1.5% on your next trade.
• You want to buy stock ABC at ₹500.
• Your technical analysis suggests a safe stop-loss is at ₹490.

1. Calculate Your Max Rupee Risk: This is the absolute maximum amount of money you can lose on this trade.
₹2,00,000 (Capital) × 1.5% (Risk) = ₹3,000

2. Calculate Your Risk Per Share: This is the difference between your entry and exit points.
₹500 (Entry) – ₹490 (Stop-Loss) = ₹10 per share

3. Determine Your Position Size: Divide your max risk by the risk per share to find out how many shares to buy.
₹3,000 (Max Risk) ÷ ₹10 (Risk per Share) = 300 Shares

By purchasing exactly 300 shares, you guarantee that a losing trade will cost you no more than your planned ₹3,000. Your risk is now perfectly defined and controlled. Use this tool for every trade to build the discipline of a professional trader.