Position Sizing – Risk Management In Equity .

In simple terms “Position sizing” means how much risk you have to take as per according to your portfolio value, like many people randomly buy “n” number of shares in the market, if that share not moving, then they square off and switch to some other trade, because they don’t want to lose the opportunity in other trade, sometimes they win and many times they do switching, Generally people deploy all of their money in one single trade, and keep waiting for stock movement, and in FOMO they do switching shares.( FOMO = Fear of missing out). & In then End they loose All Capital.

Position Sizing matter because you have to deal with many stocks, every trader has at least 5-8 stocks in their watchlist, but they are not able to make a trade in all, because they want quick and big profit and in this case they end up losing all capital, putting all money in one trade is like, you are calling trouble for yourself, it’s just a gamble.

If your position sizing is too big, it is a certainty that the account will blow up. Position sizing is probably the least discussed and most overlooked thing by traders, but it’s by far the important thing. The size of your position can also determine how hard it will be to manage your emotions while in the trade.

Once a trader booked heavy loss, he keeps on doing high trading or keep on adding leverage, just to recover earlier loss, but in this case you will surely blow up your account, During periods when you keep losing money, you have to cut down your position sizing, in that way, you will be trading your smallest position when your trading is worst.

See, We Can’t control Market movement, Neither You Nor  me, but what you can control is your loss, your risk percentage, when to trade and how to trade.

There are Important conditions to set before taking any trade: I made this in the last 3 years ( all about the experience in the market)

1. VIX: Volatility Index, whenever it is above 16 then reduce your overall portfolio risk to half of what you were taking earlier, like earlier when VIX was normal near about 10-13 levels then you were taking Risk of 2% of your portfolio, as soon as VIX approaches Dangerous levels of 16 and above then modify your risk levels to 1% of your portfolio. You can check INDIA VIX here. VIX levels generally divide into 3 parts, In the range of “9-14 Normal”, In the range of “14-18 High fluctuation”, In the range of “18-24 and Above Dangerous kind of fluctuations”. 
2. Losing Streak: A trader might get some continues losing streak, if your losing streak goes above 4, then reduce your Portfolio risk to half, Because at this point of time there will be highly emotional pressure to recover the earlier loss, and in this case, you may experience more loss in next 2-3 trades. so reduce your risk when your trading is worst and trade with less qty.
3. Leverage: Avoid taking leverage in the market, Leverage will give you profit in multiples, but at the same time it will take back in multiples also, Leverage=Greed, once you taste recipe of greed then you will get addicted to it.

How to Set Position Sizing (Don’t Go Beyond 2% Risk).

There is no Rocket science in setting position sizing, it just simple calculation of math, but many people forget this thing and they keep on trading with as per their mindset, see in market everything is in our hand, but still we blow up our account just because we can’t maintain our emotional pressure, If from starting we focus on Position sizing, it will give you excellent result, but the main thing is you have to take your every Equity trade with position sizing only and with set equation of conditions.

You have to put your trade information in this  “EXCEL SHEET Click Here to check Excel Sheet” to get an idea of how many shares you have to buy as per according to risk of your portfolio value, I am taking Portfolio Risk of 1% and I am buying ABC  Share at Rs 150, with stop loss of Rs 125 and my account have about Rs 5 Lac as cash. If you are a good trader then you can divide your trades in Different Category as per the Trade setup, Like Easy Trade take 3-4% Risk, Moderate Trade take 3% risk, Risky Trade take 2% Risk.

Don’t try to modify your stop loss in between the trade, stop loss should be fixed as concrete, Modify your stop loss or Trail your stop loss only when you book partial profit, this position sizing helps you in setting your emotion during the trade, fewer emotions in trade means good improvements in trading.

Don’t Exit your trade-in panic, A position will only close if it hit Target or stop loss, If you are in a panic that means you have big position in the market or you are playing against the trend. If you follow strict Position Sizing then you can easily avoid panic like situation, Because your Risk is fixed at 2% i.e Rs 4000 of Portfolio Value (Rs 2 Lac).

Above Position, Sizing helps you in taking Equity trades.

Learn and share it with everyone, Keep on sharing good information.