Stop-loss and position size, in that order

A stop belongs where the idea is wrong — under the low of the breakout candle, under the swing low the pullback held, under the structural level the trade is built on. “8% below entry” is a number about your feelings, not about the stock.

Once the level is chosen, the distance from your entry to it is fixed. That distance is the only input the size calculation needs.

(entry − stop) × quantity ≤ capital × risk-per-trade

With ₹5,00,000 of swing capital and 0.75% risk per trade, you may lose ₹3,750 on this idea. If the entry is ₹500 and the stop is ₹480, the risk per share is ₹20, so the size is 187 shares — about ₹93,500 of exposure. If the stop had to sit at ₹460 instead, the same ₹3,750 buys 93 shares. A wider stop is a smaller position, not a larger loss.

Notice what never entered the calculation: how good the setup looks. Conviction is not an input, because conviction is the thing that is wrong precisely when it is highest.

Portfolio heat is the total you would lose if every open position hit its stop on the same day. Six positions at 0.75% each is 4.5% of the account gone in one bad session — and correlated positions do stop out together, which is exactly what a market break is.

So there are two limits, and both must pass: risk per trade, and total heat. A common cap is 6%. When a new idea would take you past it, the honest answer is that you cannot afford this trade today, however good it looks.

Moving the stop away

A stop that retreats is not a stop; it is a wish with a number attached. The loss it was sized for becomes a loss nobody sized. Move it up, never down.

Sizing up after losses

The urge to make it back doubles risk exactly when the market has already demonstrated it is not paying. A drawdown should shrink size, not grow it.

Every plan states an entry, the level that invalidates it, and a quantity derived from the formula above with the capital you declare. The result is then reduced — never increased — by the market regime’s exposure ceiling, by your heat limit, and by a throttle that shrinks size after a drawdown. The whole method is public.

One thing it does not do: place the order. Your stop lives here as a number and at your broker as an order you place yourself.