Position Sizing: The 1% Rule Explained for Indian Traders

Published 7 July 2026 · Artha Education · ~7 min read

Position sizing is the least glamorous topic in trading and the single biggest difference between accounts that survive and accounts that don't. The rule itself fits in one sentence. This article makes sure you never break it.

The rule

The formula:

Quantity = (Capital × 1%) ÷ (Entry price − Stop-loss price)

A worked example in rupees

• Capital: ₹2,00,000
• Risk per trade at 1%: ₹2,000
• Setup: long entry at ₹510, stop loss at ₹505 → risk per share = ₹5
• Quantity = ₹2,000 ÷ ₹5 = 400 shares
• Position value = 400 × ₹510 = ₹2,04,000 (fine intraday with leverage, or size down to your cash limit)

If the stop is hit, you lose ₹2,000 — 1% of capital, exactly as planned. Not ₹2,000 "more or less." Exactly the loss you priced in before entering. That predictability is the entire point.

Don't want to do this arithmetic mid-session? Use the free position size calculator — it does the formula plus a realistic cost estimate.

Why 1% and not 5%?

Because losses compound against you faster than intuition suggests, and losing streaks are a statistical certainty, not a sign of failure. Even a strategy that wins 55% of the time will produce streaks of 5–7 consecutive losses over a few hundred trades.

At 1%, a losing streak is an annoyance. At 5%, it's a crater that needs a +43% run just to get back to zero. At 10%, the account is functionally dead. The rule isn't about being timid — it's about guaranteeing you're still in the game when your edge shows up again.

Thinking in R: the unit that makes everything comparable

Once every trade risks the same amount, that amount becomes your unit — call it 1R. A trade that makes twice what it risked is +2R; a stopped-out trade is −1R (plus costs).

Thinking in R does three things:

1. It makes your record honest. "+12R over 60 trades" means the same thing whether your capital is ₹50,000 or ₹50 lakh.
2. It reveals the real math of win rates. A 50% win rate with 1.5R average winners is a profitable system (50 × 1.5R − 50 × 1R = +25R per 100 trades, before costs). A 70% win rate with 0.5R winners and 1R losers is a losing system. Win rate alone tells you almost nothing.
3. It kills the urge to oversize. There is no "high conviction" exception. Every trade is 1R, because every trade — however good it looks — can lose.

The three ways traders break the rule

1. Sizing by quantity habit ("I always buy 500 shares")

Fixed quantity means your risk swings wildly with the stop distance. A 500-share position with a ₹3 stop risks ₹1,500; the same habit with a ₹15 stop risks ₹7,500. Same trader, same "system", 5× the risk — by accident.

2. Widening the stop after entry

Moving a stop from ₹505 to ₹498 "to give it room" silently converts a 1% risk into 2.4%. If the stop needs widening, the position needed to be smaller — before entry, not after.

3. Revenge sizing

Two losses, then doubling size to "make it back" — this is how a −2R morning becomes a −7R day. A useful guardrail: a daily loss limit of 2–3R, after which you stop trading for the day, no exceptions. A blown daily limit should end the session, not raise the stakes.

Costs are part of the size decision

An intraday round trip on NSE costs roughly 0.1–0.15% of turnover (brokerage, STT, charges, slippage). On the ₹2,04,000 position above, that's ₹200–300 — about 0.1–0.15R. It sounds small, but across 100 trades it's 10–15R: often the entire difference between a profitable year and a flat one. Any strategy record that isn't net of costs is marketing, not measurement.