The vast majority of new traders spend all their time on entries and virtually none of it on the one thing that actually determines whether you survive: how many shares do you buy? Two traders can have exactly the same setup and one of them will be absolutely fine while the other will take a massive loss purely as a result of position size. Getting the position size right is one of the most practical skills in swing trading.

Position size is the number of shares you're buying on the trade. The error most newbies make is setting it on feel, i.e. buying 100 shares because that's a nice round number or buying as many as the account will allow because the setup looks so good. That makes your risk completely random. One trade might be 0.5% risk and the next might be 8% risk and your results are going to be dictated by which of those trades was the oversized one.

A better approach starts with the risk not the shares. Firstly, decide what % of your account you're prepared to lose on the trade if it hits your stop. A lot of people will use 1% or less. Secondly, find your entry and your stop on the chart. The distance between them is your risk per share. Thirdly, divide your dollar risk by your risk per share. That gives you your position size.

Here's an example. Suppose your account is $10,000 and you're risking 1% per trade so your dollar risk is $100. You want to buy a stock at $50 with a stop at $47. Your risk per share is $3. $100 divided by $3 is approximately 33 shares. If the stop is hit you'll have lost around $100 (i.e. 1%). If the stop was 2 dollars away you'd be buying 50 shares and if it was 5 dollars away you'd be buying 20. The dollar risk is the same each time, only the number of shares changes.

What this does is that wider stops lead to smaller positions and tighter stops lead to larger ones. That's the exact opposite of what most novices do. They'll buy more when they're confident and less when they're nervous which means they're at their largest just prior to the trades that surprise them. A formula strips that emotional element away.

There's a caveat with small accounts. Your position also has to fit within your account. In the above example, 33 shares at $50 comes to $1,650 which is perfectly fine. If your stop is very tight however the formula could well tell you to buy more shares than you can afford. Your buying power is a hard limit so the actual size will be the smaller of the two. Also bear in mind that if your stop is very far away the formula may in fact give you a very small position. That's not a bug, that's the maths telling you the trade needs a lot of room and you may be better off just waiting for a better entry.

Stop placement should always be chart driven (e.g. below a swing low or below a key moving average) and the share count should then be adjusted to suit. You should never move your stop in to buy more shares. That completely defeats the object as a stop that's too tight will get hit by the normal noise.

Volatile stocks require a bit more care. A stock that moves 6% on a normal day will require a wider stop than one that moves 1%, hence it will get a smaller position for the same dollar risk. Using the stock’s average true range to set the stop distance is the way to do it.

Also bear in mind total risk rather than just the risk on any individual trade. If you have five positions each of which is 1% of the account, all in the same sector, one bad day for that sector could see you lose nearly 5% at once. A lot of traders will have a cap on their total open risk (say 4-6%) and will be very conscious of the correlation between their positions.

Finally remember that gaps can make your actual loss larger than you anticipated. If a stock gaps below your stop overnight you'll be filled at the worse price. That's another reason to keep your per trade risk very small so that one bad gap doesn't actually do any real damage.

This is general education not personal financial advice. Pick a risk level that allows you to sleep at night, write the formula down and use it on every trade.