position-sizing

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

1. Account size: Total trading capital (ask user if not known)
2. Current price: get_quotes_and_depth from Groww, or user-provided
3. ATR(14): get_historical_technical_indicators from Groww, or calculate from candle data
4. Existing positions: get_equity_portfolio_holdings to 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