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Tyler Charton
Ask a trader for their entry rule and you will usually get a clean answer in one sentence. Ask for their position sizing rule and you will usually get a pause. Most people size by feel: a little more when the setup looks obvious, a little less after a bad week, a round number when nothing in particular is going on.
The problem with sizing by feel is that it ties size to confidence, and confidence is not a predictor of anything. It means the biggest position tends to be the one you were most certain about — which is the one you are least prepared to be wrong about.
Two ways to answer "how many shares"
The first is to pick a number and stick to it. A hundred shares a trade, or five thousand dollars a trade. It feels disciplined because it is consistent — and it makes your risk random. Same rule, same conviction, six times the exposure.
The second way inverts the question. Instead of deciding how much to buy and discovering what you risked, you decide what you are willing to lose and let the share count fall out of it. The size becomes an output rather than an input.
The mechanics
Shares = Risk Amount ÷ Stop Distance
Three numbers go in. How much you are willing to lose on this trade, where you get in, and where you get out if you are wrong. The distance between those last two is the stop distance.
$10,000 account risking 1% = $100. Entry $50, stop $48 → stop distance $2 → 50 shares. Same risk on a tighter setup ($0.50 stop) → 200 shares. The tighter stop built a position 4× larger — that's the arithmetic doing its job.
The counterintuitive part is that the tighter stop produced a position four times larger. That is not a bug in the arithmetic, it is the arithmetic doing its job. Position size is not a measure of how much you like the trade. It is the answer to a division problem, and a smaller denominator gives a bigger answer while the risk stays fixed at a hundred dollars in both cases.
There are two ways to set the risk amount itself. A fixed dollar figure is simpler and stays put. A percentage of account equity scales with the account, which means it shrinks automatically in a drawdown and grows on a run. That second behavior is worth understanding rather than tolerating: the size of your bets falls exactly when your recent decisions have been worst, without you having to be honest with yourself about it in the moment. Conventional risk per trade tends to sit somewhere between half a percent and two percent. That is a description of what people do, not a suggestion of what you should do. The number is yours.
One detail that catches people out. Share counts round down, always, never up. A hundred dollars divided by two dollars and ten cents is 47.6, which becomes 47 shares. Rounding up would mean risking more than you said you would, which defeats the purpose of the exercise.
Once every trade risks roughly the same amount, results become comparable in a way they were not before. A trade that made twice what it risked is a +2R trade whether it was 47 shares or 400, and a run of trades can be read as a sequence of R multiples rather than a list of dollar amounts that reflect position size as much as decision quality.
Three pieces, and none of them is a share count.
First, the sizing setup. Choose percent of equity and set it to one percent. That is the entire configuration for this half of the rule.
Set risk per trade to 1% of equity.
The stop explainer
The Stop Loss is 2 ATR below the Entry Price.
Then two guard rails on top of it. The first stops the ATR reading from producing something absurd in a quiet or a chaotic stretch. The second keeps the stop underneath the nearest structure, so it is not sitting in the middle of a range where ordinary noise will take it out.
Guard rails explainer
Keep the Stop Loss between 0.5 ATR and 2 ATR from the Entry Price.
The Stop Loss must be below the nearest Swing Low.
Third, the exit, expressed in the same risk units so it stays consistent across every symbol the strategy touches.
Price hits at least 2 R above the Entry Price.
Notice what is absent. You never type a quantity anywhere. The engine resolves the stop to a real price at the actual fill, measures the distance, divides your risk amount by it, and rounds down. If the answer comes out below one share, or the position will not fit the available buying power, the trade is skipped and the ticket records the reason. It does not quietly take a smaller position than your rules called for, which is the failure mode you want, because a rule that silently bends is not a rule you can test.
Where it breaks
Four things this rule does not do, in rough order of how often they matter.
Gaps
Your risk amount is what you lose if the stop fills at the stop, and it does not always. A stock that closes at fifty and opens at forty-four fills a forty-eight dollar stop at forty-four, and the hundred dollar loss becomes three hundred. Nothing about position sizing prevents this. Risk per trade is a discipline on your sizing, not a guarantee on your loss, and any backtest worth reading models gap fills at the opening price rather than politely assuming the stop got the level it asked for.
Tight stops build large positions
A hundred dollars of risk with a ten cent stop distance is a thousand shares. The arithmetic still says a hundred dollars. The reality is fifty thousand dollars of stock where a few cents of slippage on the way out costs more than the trade was ever likely to make, and where the stop is close enough to the entry that ordinary noise decides the outcome. If a strategy regularly produces very tight stops, a minimum stop distance is worth thinking about.