Position Sizing
Position sizing is how you survive. The goal: risk a small, consistent percentage of capital per trade so that no single loss can cripple your account.
Prerequisites
No dependencies required. Works with manually provided prices. Enhanced with Groww MCP (live price, ATR, portfolio) or yfinance (pip install yfinance).
Data Needed
- Account size: Total trading capital (ask user if not known)
- Current price:
get_quotes_and_depthfrom Groww, or user-provided - ATR(14):
get_historical_technical_indicatorsfrom Groww, or calculate from candle data - Existing positions:
get_equity_portfolio_holdingsto check concentration (optional)
Method 1: Fixed Fractional (Default)
This is the go-to method. Simple, robust, works for everyone.
Risk per trade = Account size × Risk%
Shares = Risk per trade ÷ (Entry price - Stop-loss price)
Capital required = Shares × Entry price
Risk% guidelines:
| Situation | Risk% |
|---|---|
| Normal (no leverage) | 1-2% |
| With 2x leverage | 0.5-1% |
| With 3-4x leverage | 0.25-0.5% |
| High conviction trade | Up to 3% (rare) |
| New/uncertain setup | 0.5% |
Example
Account: Rs.10,00,000
Risk: 2% = Rs.20,000
Entry: Rs.1,800
Stop: Rs.1,700 (Rs.100 risk per share)
Shares: 20,000 ÷ 100 = 200 shares
Capital: 200 × 1,800 = Rs.3,60,000 (36% of account)
Method 2: ATR-Based Sizing
Uses volatility to set the stop distance, then sizes accordingly.
Stop distance = ATR(14) × multiplier
Shares = Risk amount ÷ Stop distance
| Market Condition | ATR Multiplier |
|---|---|
| Low volatility (ADX < 20) | 1.5× ATR |
| Normal volatility | 2.0× ATR |
| High volatility (ADX > 30) | 2.5× ATR |
This naturally sizes you smaller in volatile stocks and larger in calm ones.
Method 3: Kelly Criterion (Advanced)
For traders with a track record of at least 30 trades:
Kelly% = W - (1 - W) / R
W = historical win rate
R = average win / average loss
Use Half-Kelly (Kelly% ÷ 2) for real trading — full Kelly is too aggressive.
| Win Rate | Avg W/L Ratio | Kelly% | Half-Kelly |
|---|---|---|---|
| 40% | 2.0 | 10% | 5% |
| 50% | 1.5 | 17% | 8% |
| 60% | 1.2 | 27% | 13% |
Portfolio Constraints
These are hard limits — never exceed them regardless of sizing method:
| Constraint | Limit |
|---|---|
| Single stock | Max 20% of portfolio |
| Single sector | Max 35% of portfolio |
| Total open risk | Max 6% of portfolio (sum of all position risks) |
| Correlated positions | Max 3 stocks in same sector simultaneously |
If a position would breach a constraint, reduce size until it fits.
Leverage Adjustment
When using margin/leverage, the math changes because losses are amplified:
Effective risk% = Risk% × Leverage
So: reduce your base risk% by dividing by leverage
At 3.74x leverage:
Normal risk: 2%
Adjusted risk: 2% ÷ 3.74 ≈ 0.5%
This keeps your effective risk at ~2%
Output
Present position sizing as:
Position Size: XXX shares
Capital Required: Rs.X,XX,XXX
Risk Amount: Rs.X,XXX (X.X% of account)
Stop-Loss: Rs.XXX (X.X% below entry)
Portfolio Allocation: XX% of total capital