In this article
Ask experienced traders what separates those who survive from those who blow up their accounts, and you’ll hear the same answer surprisingly often: position sizing. Not the perfect entry, not a secret indicator — simply how much you buy.
What the 1% rule says
Never risk more than 1% of your trading capital on a single trade.
“Risk” here means the amount you would lose if your stop-loss is hit — not the amount you invest. With ₹5,00,000 of trading capital, 1% risk means a maximum loss of ₹5,000 per trade.
Why it works: surviving losing streaks
Every strategy has losing streaks. Look at what ten losses in a row do to an account at different risk levels:
| Risk per trade | Account left after 10 straight losses |
|---|---|
| 1% | about 90% |
| 2% | about 82% |
| 5% | about 60% |
| 10% | about 35% |
At 1% you’re bruised but fine. At 10% you need a gain of about 186% just to get back to where you started. Small risk per trade isn’t timid — it’s what lets a good strategy play out over hundreds of trades.
The position size formula
Quantity = (Capital × Risk %) ÷ (Entry price − Stop-loss price)
Example: capital ₹5,00,000, risk 1% = ₹5,000.
Entry ₹1,000, stop-loss ₹980 → risk per share = ₹20.
Quantity = 5,000 ÷ 20 = 250 shares (₹2,50,000 position).
If the stop is hit, you lose 250 × ₹20 = ₹5,000 — exactly 1%.
The stop-loss decides the size — not the other way round
Many beginners decide “I’ll buy 500 shares” and then place a stop-loss wherever it feels comfortable. Professionals reverse this:
- Find the logical stop-loss — below support, a recent swing low, or a level that proves the trade idea wrong.
- Measure the distance from entry to that stop.
- Calculate the quantity so that distance × quantity = your fixed risk amount.
Same stock, same 1% risk, different stop distances:
| Stop-loss | Risk per share | Quantity | Position value |
|---|---|---|---|
| ₹990 | ₹10 | 500 | ₹5,00,000 |
| ₹980 | ₹20 | 250 | ₹2,50,000 |
| ₹950 | ₹50 | 100 | ₹1,00,000 |
The loss if wrong is ₹5,000 in every row. A wider stop simply means fewer shares.
If the calculated position is larger than your capital (or your margin limit), take the smaller size. Never widen your risk to fit a bigger position.
Adding the target: risk–reward
Position sizing pairs naturally with a risk–reward ratio. If your target is ₹1,060 in the example above, the potential reward is ₹60 per share against ₹20 of risk — a 1:3 ratio. At 1:3, you can be wrong more often than you are right and still come out ahead over many trades (before charges).
Practical tips
- Include charges in your thinking for small intraday trades — brokerage, STT and GST can eat a meaningful share of a tight stop.
- Cut size around events such as results, budgets or major data releases, when gaps are more likely.
- Track your real losses. If losses regularly exceed your planned 1%, your stops are slipping or you are hesitating to exit.
- Recalculate your risk amount as your capital changes — after gains and after drawdowns.
Calculate it in seconds
Our Position Size Calculator takes your capital, risk %, entry and stop-loss and tells you exactly how many shares to buy, how much is at risk, the position value and — if you add a target — your risk–reward ratio. It works for both long and short trades.
This article is for education only and is not investment advice. Trading involves risk of loss.
Free toolTry the Position Size CalculatorKnow exactly how many shares to buy so a stop-loss costs only what you planned.Frequently asked questions
Is 1% too conservative?
Many professionals risk between 0.5% and 2% per trade. Beginners are usually better off at the lower end while they learn, because losing streaks are common.
Does the 1% rule mean I can only invest 1% of my capital?
No. It limits the amount you could lose if the stop-loss is hit, not the size of the position. With a tight stop, a 1%-risk trade can use a large part of your capital.
What about overnight gaps?
A stock can open beyond your stop-loss after news, causing a bigger loss than planned. Reduce size before results, events or in very volatile stocks.
For education only — not investment advice or a recommendation to buy or sell any security. Trading involves risk of loss. Verify charges and prices with your broker. Written by the Toolsopedia team. Spotted an error? Tell us and we’ll fix it.