Learn how professional traders determine the right position size to protect their capital and maximize returns.
Position sizing determines how much of your capital you risk on any single trade. It's arguably the most important aspect of risk management, yet it's often overlooked by beginners.
Many professional traders never risk more than 1-2% of their total capital on a single trade. This means if you have $100,000 in your account, you should risk no more than $1,000-$2,000 per trade.
Position size = (Account Risk) / (Trade Risk per Share)
For example, if you're willing to risk $1,000 and your stop loss is $5 away from your entry, your position size should be 200 shares.
With proper position sizing, you can survive a string of losing trades and stay in the game long enough to capture winning trades.