How to work out Position Sizing

Position Sizing - it plays an important role of protecting the trader for being over exposed to a particular trade by minimizing the risk .


The percentage (%) of risk can be measure in terms of 1-5 or 6-10 % that you can afford to loss for each trade.

How to work out the maximum quantity for each trade that depends of each an individual risk tolerance level.

For example, person A can only tolerate a loss of 3% for each trade.

Let's say he has $10000 as capital. 3% risk appetite.


The formula is roughly as follow:-

10000 x 3% ( risk per trade - 1-10%)
--------------------------------------------
Entry Price less Cut Loss price

=             300
    --------------------------
    $1.00(EP) - $0.95(SL)

      300
 =  -------    =  6000 share.
      0.05

Person A capital for his /her trade is 6000 x $1.00 = $6000



For example , person B risk appetite is 5%.

let's say he or she has $12000 as capital , 5% risk exposure.


The formula is roughly as follows:-

12000 x 5% (% risk per trade)
-------------------------------------
$1.10(EP) less $1.01(SL)

      600
=  ---------
      0.09

= 6600 share.


Person B, he/she capital for this trade would be 6600 x $1.10 = $7260



The above example is meant for educational illustration and is not an advice or recommendation for any particular stock trading.

Pls dyodd.