Thread by @AnandableAnand

Beginner's guide to position sizing

Thread

You should not risk more than 0.25% of your trading capital on a single trade

You will come across ppl who risk 1-10% capital, but it's not prudent or required

In book "market wizard", most professional traders are risking 1-2% max

But they are professionals doing it for years.

If you risk 0.25%, u have to be wrong 400 times in a row to completely finish your capital.

For beginners, 25% accuracy is not difficult to achieve.

Assuming 1:2 risk to reward ratio

After a series of 10,000 trades,

You will be looking at Drawdown of 6.25%.

May be, after charges, DD of 10%

That becomes your worse case scenario

Once your accuracy level improves from 25% to 35-40%, you can increase position size to 0.5% but it will take minimum a year's time

So let's say, your capital is Rs 400,000

You should not risk more than Rs 1000 per trade, that is inclusive of charges n slippage.

Below Simple formula u can use

Total Quantity = 1000/ (buy price - stop loss price)

Ex if u want to buy banknifty 30200 call at 300 and SL at 250

Your quantity will be

1000/(300-260) = 25

Similarly for positional, let's say u buy reliance at 1990, SL at 1900

Quantity = 1000 /(1990-1900)= 11 shares

Trust me, if u follow this IRON clad rule, u will never blow up your account, which is most common problem with newbie

Also, your Drawdown will be less taxing (single digit) , which helps u in remaining disciplined

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