[Soultrader]

Let's say you are willing to risk 2% of your capital per trade.

First thing you need to know is your exit stop loss point. In this example, let's say you are trading a stock XYZ currently priced at $100 even. Keep this in mind, a 1 point movement in a $100 stock (1%) represents a small percentage compared to a 1 point movement in a $10 stock (10%). Use a wider stop for a high priced stock and a tighter stop for a lower priced stock.

Let's say you are willing to risk $5 on this trade. Thus your stop loss point per trade = $5.

If you have a trading capital of $100,000; 2% risk is equivalent to $2000.

To calculate your maximium position size:

(2% Risk / Stop Loss Point Per Trade ) = Maximum position size

$2000 / $5 = 400 Shares

This is an appropiate position size. You should always know how much money you may lose before looking at the profit side.