Position sizing calculator - how to use it

Many beginner traders do not adjust their position size to the risk, which can lead to significant losses. Example: you invest 5,000 PLN in stocks without considering the risk level and lose 10% - that’s 500 PLN from your capital. Another mistake is ignoring slippage and spread. Let's assume you buy stocks and the spread is 0.5%, and the slippage related to order execution adds another 0.5%. Even if the price moves in your favor by 1%, the real profit is 0% after accounting for these costs. Another mistake is the lack of a stop loss or its improper setting. A stop loss order does not always work as planned, which can lead to larger losses than anticipated.

Ignoring the correct position size leads to excessive risk, which frankly is detrimental to your account. The mechanism is simple: if you risk too much on one trade, a few unsuccessful transactions can completely wipe out your capital. Slippage and spread are hidden costs that you often underestimate, but over time they can eat away a significant portion of your profits. Poorly set stop losses can cause you to lose more than you planned, which has a direct negative impact on your balance.

Assume you have a capital of 15,000 PLN and you usually risk 10% on a trade without considering the appropriate position size. After three unsuccessful trades, you lose 4,500 PLN - that's as much as 30% of your capital! Slippage and spread, when not taken into account, can cost another 1-2% per trade. If, despite a profitable market movement, profits are minimized by these costs, over the long term you lose the real opportunity to grow your capital.

1. Set a percentage risk for each trade. For example, do not risk more than 1-2% of your capital in one trade.
2. Use a position size calculator to adjust the amount of invested funds to the set risk level and the distance of the stop loss.
3. Analyze transaction costs, such as spread and slippage, and include them in the calculations of potential profit.
4. Test different scenarios in the calculator to better understand how various settings affect the outcome of the trade.
5. Regularly review and adjust your strategies based on past results.

Create and apply a daily position size strategy tailored to your capital and risk.