Position Sizing is the process of determining how much capital to allocate to a specific trade or investment, balancing the desire to maximise returns with the discipline of controlling risk. It is one of the most important and most underappreciated elements of a sound trading and investment framework. Common position sizing methods include fixed rupee risk per trade (risking a set amount, such as 1% of capital, on each trade), fixed percentage of portfolio, and volatility-adjusted sizing (where position size is scaled inversely to the asset's volatility so that each position contributes equal risk). Proper position sizing ensures that no single losing trade significantly damages the overall portfolio, allowing a trader to survive drawdowns and continue operating with a positive-expectancy strategy over many trades.
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