Level 4: Risk & Money ManagementInteractive
Position Sizing
20 min readUpdated Mar 2026
To calculate position size, divide your risk amount by your per-share risk: Shares = (Account Balance x Risk %) / (Entry Price - Stop Price). For example, a $50,000 account risking 1% with a $5 per-share risk buys 100 shares. The 1% rule ensures no single trade can damage your account.
Position sizing answers the practical question before each trade: how many shares should I buy?
Professional traders decide how much they are willing to lose first, then calculate position size from there. The stock price and account balance determine shares, not the other way around.
Why Not 0.5%?
You can risk less than 1%. The trade-off: smaller positions mean smaller absolute profits. For accounts under $25,000, 0.5% can make positions too small to be practical after commissions.
If you are unsure, start with 1%. Increase later once you have a documented track record.
Conviction Trap
Most traders overrate their setups. If you use conviction-based sizing, journal your ratings and compare to outcomes. The data will show whether your ratings are accurate.
Risk-based sizing automatically adjusts for stock price. Same $500 risk, different stocks:
Position values differ, but risk is identical. You size based on risk, not capital deployed.
Key Takeaways
Try This
Pick three stocks at different price levels (under $20, $50-100, above $200). Identify a logical stop-loss from each chart. Use the formula with a $50,000 account and 1% risk. Notice how it automatically adjusts for price.
Swingfolio calculates position size, risk, and R-multiples for every trade in your journal. Stop doing math on napkins.
Start Tracking FreeDisclaimer
This educational content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Trading involves risk of loss. You should consult a qualified financial advisor before making investment decisions. Swingfolio is a trade journaling tool, not a financial advisory service.