Risk & Position Sizing: The Core of Trading Discipline

Without risk management, even the best strategy fails. Learn how to size trades so one loss never ruins your capital.

1. Fixed % of capital per trade

Risk only a small, fixed % of your capital on each trade—commonly 0.5% to 2%. If your account is ₹5,00,000 and you risk 1%, your max loss per trade is ₹5,000. Position size = (risk capital ÷ stop distance).

2. ATR-based position sizing

The Average True Range (ATR) measures volatility. Wider ATR → bigger stop → smaller position. Narrow ATR → tighter stop → larger position. This normalizes trade risk across calm vs volatile markets.

Example: Stock trades at ₹1000. ATR(14) = 25. Stop = 2 × ATR = 50 points. Risk per trade = ₹5000 → Position size = 5000 ÷ 50 = 100 shares.

3. Portfolio-level limits

Max per trade: 1-2% of account equity.
Max open risk: 5-8% across all positions.
Correlated trades: Count related positions as one (e.g., NIFTY & BANKNIFTY).

4. Event & volatility adjustments

Cut size ahead of major events (Fed, RBI, earnings). If VIX spikes, scale down exposure. When volatility compresses, you can increase slightly.

5. Using finstrument.ai to apply risk

On the Instrument page, check ATR and recent swing levels to set stops. Use Screeners to find trades, then apply your sizing rules before execution. Cross-check correlations on the Heatmaps and Markets.

Pro tip: Journaling position size vs outcome improves discipline. Over time, you'll see that survival and steady compounding matter more than chasing huge wins.