4) Trading Strategy
You can have the best analysis in the world, but if your position sizing is wrong, you can still go bankrupt. Position sizing is the most underrated skill yet the most decisive factor for your portfolio's fate.
Position sizing is determining how many lots or how much capital to allocate for each stock transaction. It determines how much impact one trade (whether profit or loss) has on your overall portfolio.
Position sizing is like dividing food portions on plates. If you put all the rice, sides, and vegetables on one giant plate, you can't eat anything else and if it falls, all the food is gone. But if you split across several plates with the right portions, even if one plate falls, you still have the others. Never put all your food on one plate!
Trader A has Rp 100 million and puts 50% (Rp 50 million) in one stock, GOTO. Price drops 20%, loss is Rp 10 million or 10% of total capital. Trader B with the same capital puts only 10% (Rp 10 million) in GOTO. Price drops 20%, loss is only Rp 2 million or 2% of total capital. Trader B is still calm, Trader A is already panicking.
After understanding this concept, apply it in tools so decisions become more objective and measurable.
Open Risk Management CalculatorWhat's the simplest position sizing formula?
The simplest formula: Position Size = (Risk per Trade) / (Stop Loss Distance in %). Example: max risk Rp 1 million, stop loss 5%. Position size = Rp 1 million / 5% = Rp 20 million. So you buy Rp 20 million worth of stock, and if it drops 5%, your loss is exactly Rp 1 million.
How many stocks should ideally be in a portfolio?
For active traders, 3-5 stocks is sufficient so you can focus on monitoring. For investors, 5-10 stocks from different sectors provides good diversification without too much to track. More than 15 stocks is usually over-diversification and performance tends to mirror the index.
