How do I calculate position size?

    Quick Answer

    Position size = (Account Risk %) × Account Balance ÷ (Entry Price - Stop Loss Price).

    Detailed Explanation

    Position sizing determines how many shares or contracts to trade based on your risk tolerance. The formula is: Position Size = Risk Amount ÷ Risk Per Share. First, determine your dollar risk (1-2% of account). Then divide by the distance from entry to stop loss. This ensures you never lose more than your predetermined risk amount.

    Key Points

    • 1Step 1: Determine account risk (1-2%)
    • 2Step 2: Calculate dollar risk amount
    • 3Step 3: Identify stop loss level
    • 4Step 4: Calculate risk per share (entry - stop)
    • 5Step 5: Divide dollar risk by risk per share

    Example

    $50,000 account, 1% risk = $500. Entry at $100, stop at $95. Risk per share = $5. Position size = $500 ÷ $5 = 100 shares.

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