Most sizing mistakes come from choosing the number of shares first and the stop second. Do it the other way round: decide what you can lose, find where the trade is wrong, and let the share count fall out of those two numbers.
Step 1. Decide the dollars at risk
Pick the amount you are willing to lose on this one trade. Many traders use a fixed percentage of the account, often between 0.5% and 2%. On a $10,000 account, 1% is $100.
Step 2. Find the stop
The stop goes where the idea is proven wrong, not where the loss feels comfortable. Say you buy at $50 and the idea is wrong below $47. The risk per share is $3.
Step 3. Divide
$100 ÷ $3 = 33 shares (rounded down)
That position costs $1,650, which is 16.5% of the account. If the stop is hit you lose about $100. Had you bought 100 shares because it is a round number, the same stop would cost $300.
Step 4. Check the second limit
A tight stop makes the share count large, and this is the check most calculators skip. Take the same $50 stock with a stop at $49.50. The risk per share is $0.50, so $100 buys 200 shares. Those 200 shares cost $10,000, the whole account in one name.
If the stock opens 10% lower the next morning, the stop does not save you. The loss is about $1,000, ten times the plan.
So set a cap on position size as a share of the account, for example 30%, and take the smaller of the two answers:
| Check | Shares |
|---|---|
| From the stop: $100 ÷ $0.50 | 200 |
| From the cap: 30% of $10,000 ÷ $50 | 60 |
| Take the smaller | 60 |
At 60 shares the planned loss drops to $30. A smaller trade than you wanted is the correct result.
The rule in one line: shares = the lower of (dollars at risk ÷ stop distance) and (cap dollars ÷ entry price), rounded down. If that leaves a position too small to bother with, skip the trade.