Clarification on position size with money management

#1
Dear Experts,

I am a newbie here who has started paper trading and reading tons of articles to get into the world of trading. I have a small confusion on the following math regarding calculation of NUMBER OF SHARES TO BUY on a BUYING scenario. Please do clarify it clearly.

FOLLOWING ARE ALL ASSUMPTIONS PLEASE.


Trading Account : Rs 1,00,000/-

Amount willing to risk per trade : 2% of 1,00,000 which is Rs 2000/trade

Eg: TITAN EQUITY ( Current Market Price) : Rs 318/Share

My Logical calculated Stop Loss referring chart (Technically) : Rs 315

Difference in Stop Loss per share willing to Risk : Rs 3

Formula to calculate number of shares to be bought : Risking amount of Total trading account / Amount to be lost per share

So here it would be 2000/3 ( I hope so the formula is right) : 666 Shares can be purchased

But my total account value is Rs 1,00,000. For buying 666 shares I need 318 x 666 = Rs 2,11,788/- ( I am not considering leverage factor here. Just keeping it simple)

But I know that with Rs 1,00,000 I can ONLY buy 1,00,000/318 Shares = 314 Shares.

So where is the mistake over here and how do we actually calculate the proper number of shares/size to BUY/SELL within the trading capital. I am confused here totally.

My risk is 2% per trade
Keeping the SL 3/trade , how do we come to this point to calculate the position size.

Requesting you to derive a formula to get the position size.
Not interested in some calculators. But actual math needed Gurus considering the above scenario

Thanks for viewing though and kindly help me out and help other newbies out as well:D

Guide me EXPERTS:cool:
 

manishchan

Well-Known Member
#3
Dear Experts,

I am a newbie here who has started paper trading and reading tons of articles to get into the world of trading. I have a small confusion on the following math regarding calculation of NUMBER OF SHARES TO BUY on a BUYING scenario. Please do clarify it clearly.

FOLLOWING ARE ALL ASSUMPTIONS PLEASE.


Trading Account : Rs 1,00,000/-

Amount willing to risk per trade : 2% of 1,00,000 which is Rs 2000/trade

Eg: TITAN EQUITY ( Current Market Price) : Rs 318/Share

My Logical calculated Stop Loss referring chart (Technically) : Rs 315

Difference in Stop Loss per share willing to Risk : Rs 3

Formula to calculate number of shares to be bought : Risking amount of Total trading account / Amount to be lost per share

So here it would be 2000/3 ( I hope so the formula is right) : 666 Shares can be purchased

But my total account value is Rs 1,00,000. For buying 666 shares I need 318 x 666 = Rs 2,11,788/- ( I am not considering leverage factor here. Just keeping it simple)

But I know that with Rs 1,00,000 I can ONLY buy 1,00,000/318 Shares = 314 Shares.

So where is the mistake over here and how do we actually calculate the proper number of shares/size to BUY/SELL within the trading capital. I am confused here totally.

My risk is 2% per trade
Keeping the SL 3/trade , how do we come to this point to calculate the position size.

Requesting you to derive a formula to get the position size.
Not interested in some calculators. But actual math needed Gurus considering the above scenario

Thanks for viewing though and kindly help me out and help other newbies out as well:D

Guide me EXPERTS:cool:
Your quantity of shares to buy would be have upper limit at your max capital. So for 1,00,000 you can trade only 1 quantity if the SL is high but you can't trade more than 314 just because SL is low. Here are few examples :

Capital : 1,00,000
Risk per trade : 2% (2000)
Script Price : 318
Max Quantity you can trade : 1,00,000/318 = 314 quantity.

Now, what 2000/trade risk means... 2000 (your risk) / 314 (quantity you trading) = 6.4 (your SL).

So in summary.. you can trade max 314 shares with entry price of 318 as long as your SL is within 307.6. Why ?? Because beyond 6.4 of SL would mean you are risking more than 2%.


Another example :

Capital : 1,00,000
Risk per trade : 2% (2000)
Script Price : 1000
Max Quantity you can trade : 1,00,000/1000 = 100 quantity.

Now, what 2000/trade risk means 2000 (your risk) / 100 (quantity you trading) = 20 points (your SL).

you can trade max 100 shares with entry price of 1000 as long as your SL is within 980 Why ?? Because beyond 20 of SL would mean you are risking more than 2%.


Hope this clears your confusion.
 
#4
Thank you CUBT and MANISHCHAN

CUBT Sir led me to a good thread, and that did give good information.



MANISHCHAN Sir Ur statements are true , I agree. U did the inverse style and finally u arrived at the stop loss calculations within the risk limit thts also one good technique.

Verdict is Trade 10% of Total portfolio for one single SCRIP
2% Risk of Total portfolio
Risk Reward - depends on style
Find the most feasible position size as per the current scenario.
Lower size - Conservative
Higher size - Aggressive

GOOD INFO GUYS>>>> THANK YOU BOTH:clap:
 

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