I received a query by a new trader, How much risk one should carry and how to come about position size.??
Lets take you have a capital of Rs.1 lac. And i have my rules which says you dont need to bet not more than 1% of your capital. So for 1 lacs it comes around Rs.1000.
Suppose you wanna buy, stock - ABC limited CMP:100 and stoploss according to your system coming around Rs. 96.2 So thats a 3.8% stoploss. Ideally i would not prefer stoploss more than 8%, a rarest case 10% for a stock.
SO Rs.100-Rs.96.2 = Rs. 3.8
Divide your risk Rs.1000 by 3.8 comes around 263 round it off to 260.
So you need to buy 260 shares of Stock ABC @ Rs.100 With stop at Rs.96.2
Incase your stoploss got triggered you will have loss of Rs.3.8 * 260 = Rs. 988
Another thing to remember, if you buying 260 shares @ Rs.100 you are blocking Rs.26000 of your capital, unless you are trading on margin.
This is what risk limiting and position sizing means...
Offcourse, in coming future we will dealt with position sizing in R multiples and more intricacies...
For beginners this will do...
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Having a discipline to stick to your stoploss is more important than whole process of investing...
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Courtesy:anil_s_trivedi, member of TJ
Lets take you have a capital of Rs.1 lac. And i have my rules which says you dont need to bet not more than 1% of your capital. So for 1 lacs it comes around Rs.1000.
Suppose you wanna buy, stock - ABC limited CMP:100 and stoploss according to your system coming around Rs. 96.2 So thats a 3.8% stoploss. Ideally i would not prefer stoploss more than 8%, a rarest case 10% for a stock.
SO Rs.100-Rs.96.2 = Rs. 3.8
Divide your risk Rs.1000 by 3.8 comes around 263 round it off to 260.
So you need to buy 260 shares of Stock ABC @ Rs.100 With stop at Rs.96.2
Incase your stoploss got triggered you will have loss of Rs.3.8 * 260 = Rs. 988
Another thing to remember, if you buying 260 shares @ Rs.100 you are blocking Rs.26000 of your capital, unless you are trading on margin.
This is what risk limiting and position sizing means...
Offcourse, in coming future we will dealt with position sizing in R multiples and more intricacies...
For beginners this will do...
-------------------------------
Having a discipline to stick to your stoploss is more important than whole process of investing...
-------------------------------
Courtesy:anil_s_trivedi, member of TJ