Risk and psychology
Position sizing
Definition
Choosing the number of shares or contracts so that a full stop-out costs your planned risk per trade, and no more.
Example
Say you plan to risk $300 on a trade, buying at $42.00 with a stop at $40.50. The risk per share is $1.50, so $300 ÷ $1.50 = 200 shares. If the stop were at $41.40 instead, the same $300 would allow 500 shares, $21,000 of stock instead of $8,400: the stop distance changes the size, not the dollar risk.
Hypothetical numbers, for illustration only.
Also defined in
UpTickFlow is our product. These guides are education, not financial advice. Trading involves a substantial risk of loss.