How much you buy matters more than what you buy. A good setup with too much money in it can still wreck an account.
Start from the loss, not the gain
Many traders cap the loss on any one trade at a small slice of their account, often 0.5% to 1%. Then they work out the size from the distance to their exit:
The formulaShares = (account × risk %) ÷ (entry − exit price)
$10,000 account, 1% risk = $100. Entry $50, exit if back inside the hub at $48 ($2 away). $100 ÷ $2 = 50 shares.
$10,000 account, 1% risk = $100. Entry $50, exit if back inside the hub at $48 ($2 away). $100 ÷ $2 = 50 shares.
If the trade fails, you lose about $100, not $1,000. A string of losses (which every method has) stays survivable.
Gaps can make losses bigger
Prices can jump overnight, past your exit. Earnings, news and market-wide shocks cause gaps. Smaller sizes are the only real protection.
Key points
- Decide the most you'll lose first, then size the trade.
- Many traders risk 0.5–1% of their account per trade.
- Gaps can push losses past your planned exit.
Check yourself
$20,000 account, 1% risk, entry $40, exit at $38. How many shares?
Educational content only, not financial advice. See today's setups in NextShelf →