How to Calculate Position Size (the 1% Rule Explained)
Most beginners obsess over entries and ignore position sizing entirely. Big mistake. You can be wrong half the time and still make money if you size properly. Mess this up and one bad trade can erase months of gains.
What is position sizing?
Position sizing answers one question: how many shares should I buy? It's not about picking winners — it's about limiting damage when you're wrong.
The goal: cap every loss to a small percentage of your account. Most pros risk 1–2% per trade, max.
The position size formula
Position size = (Account size × Risk %) ÷ (Entry price − Stop-loss price).
Example: $10,000 account, risking 1% ($100). Entry at $50, stop at $48. Risk per share = $2. Buy $100 ÷ $2 = 50 shares.
If it hits your stop, you lose exactly $100. Not $150 because you got emotional. Not "let me give it more room." $100. Done.
Why the 1% rule works
You'd need 100 straight losses to zero out. That's basically impossible if you have any edge at all.
More importantly, it keeps you sane. When the downside is tiny and fixed, you stop panic-selling.
Common mistakes
Sizing by feel instead of using a stop-loss. If you don't know where you're wrong, you can't calculate risk.
Going bigger on "sure things." Every trade gets the same risk budget. No exceptions.
Forgetting commissions and slippage. On small accounts, fees can double your real risk.
Free tool
Position Size Calculator
Risk the right amount on every trade.
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This is educational content, not financial advice. Investing carries risk — you can lose money. Do your own research.