The majority of short-term trading results are just random. In the long term the money ends up with those that can trade and manage risk.
Why Risk Management is Important?
People who don’t follow Risk Management they can blowout their account easily. For instance, they are taking 20 % risk of trading capital, then only 5 wrong trade can blow their account.
The 1 % Rule
Let’s say you have 10,000 rs in your account and as per 1% rule you can lose only 100 rs per trade. For example, if you take 10 trade with 1:2 Risk Reward ratio and having winning percentage of 50 % then your P&L will be look like this.
At the end of the day, you will take money in your account with proper risk reward ratio and money management.
Position Size Calculation:
Let’s say you want to long Reliance and having Stop Loss of 5rs with trading capital is 10,000 rs. So, Formula is
Position Size = (1% of Trading Capital) / (Stop Loss)
For our trade example, Position Size is = 100/5 = 20 Qty Hence, we required 20 Qty to trade Reliance with 100 rs as a stop loss.
To conclude this post, trader should have (Min Loss, Max Profit, Breakeven). Whereas, Max Loss should be avoided to remain in trading career for long term. Please check my Fibo Trading Strategy post to know more about Stop loss, I will link with this post.
how can i purchase 20 shares of reliance if my capital is 10k only? (new to trading and risk management)
kleympermina
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@jubilantLion77710 , you will get 5x leverage in intraday trading, So, at Current market price 2300, you can buy 20 QTY at 9245rs. However, you need to square off you're postion before 3:30.
@Akhil_P_Unnikrishnan, So True, it reduced drastically and now currently at 5x but i believe trader will add more capital or start trading options with vertical spread or horizontal spread to get margin benefit.
gopikrishnakunchanapalli
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@kleympermina , bro lets say i have enough money to buy 20 shares of reliance at 2300. It needs 46000 but i calculated the position size with 10000 capital. Is this calculation still valid or correct if I buy 20 shares with 46000? The loss will be anyhow 100 anyhow in the trade. I am very confused about this total capital amount and per trade amount. Pls help me. I dont want to use leverages.
clack27
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@gopikrishnakunchanapalli, If you are deploying the capital of 46000, then why position sizing will be with 10000 capital?
paramne
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sorry but one cannot trade with a stop loss of 100 even 500 rs... the stop loss will hit everytime and eventually you'll be in loss all the time
kleympermina
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@paramne, please check my fibo trading strategy, where i mentioned how to use stop loss