Thread by @JayneshKasliwal

A Thread on Risk Management and Art of Position Sizing 🧵

⏺️A part of Risk Management that could make or
break your trading career
⏺️Position sizing refers to the number of units an
investor or trader invests in a particular security.

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Determining appropriate position sizing requires
an investor to consider their risk tolerance and
the size of the account.

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POSITION SIZING :

In simple Language how much Percentage of your Portfolio you should invest in a particular Script .

This is very important factor that changes your returns drastically .
There are rules to be followed
Either Fix Risk per Trade
Or Capital Allocation

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Let's take an example
WHEN RISK PER TRADE IS FIXED :

TOTAL CAPITAL = 1,00,000 Rs
RISK PER TRADE = 0.5% OF TOTAL CAPITAL
(this could vary from 1-2%)
RISK PER TRADE = 500 Rs

Now stock Price = 100
Stop loss = 96 Rs
Risk per single Stock = 4 Rs
Total Risk per Trade = 500
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UANTITY = RISK PER TRADE/ RISK PER SINGLE STOCK

Quantity = 500/4 = 125

In this case Now Capital allocation is
125×100 = 12500

In such Cases your capital allocation
Will keep on changing for every traded depending upon your stopnloss % of that particular stock

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WHEN CAPITAL ALLOCATION IS FIXED :

General Stock Allocation = 7%
No of Stocks to hold max = 12
Cash to Be held Everytime = 15%
(General Rule , you can change according to your risk)

Now stock Price = 100
Stop loss = 96 Rs
Risk per single Stock = 4 Rs

7000÷100 = 70 Qty
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In this case you loose max
70×4 = 280 Rs

During Capital Allocation fixation
The stop loss amount keep on changing depending upon the particular stock.

You can make fix Rule of max 10% stop loss per trade to keep losses minimum.
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Working On ideal Position Sizing Is important
Why?

10% Move and 10% Position moves your Pf up 1%

10% Move And 20% Position moves Your Pf up 2%

10% Move and 2% Positon
Moves your Pf 0.4%

Moves are not Important
Correct Pf allocation is Imp
Dont overleverage/underbuy
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2 golden rules of trading -

1. You cant be right all the time. Only markets & God can be.

2. Even if you are right 50% of the time, you can still win if you follow right risk reward & position sizing

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