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It's a fact; the majority of people who try trading for a living fail and give up in the first six months. One reason for this is that many traders risk far too much on each trade they make. While you should be a winner on at least half your trades, it is easy to have several losses in succession, and the amount they take out of your account can severely limit your future possibilities.

Statistics show it is hard to recover from big losses. If you lose 20% of your account, you don't have to gain 20% to get back to your starting position, you have to gain 25%. The more you lose, the more difficult it is to recover your capital. If you lose 40% of your account, then you need to have gains of 67% just to get back to where you started; with 50% losses, you have to double what you have left, that is you need 100% gain, and that is not easy to achieve when trading.

As you can see, you can rapidly find yourself unable to recover your account if you have several losses in succession, when you stake too much; if you do much trading, you are statistically bound to have several losses in succession at times in your career.

That is why many professional traders consider that even 2% loss on your account is as much as you should risk. Some use lower figures still. This is not as constricting as you might think. Whenever you enter a trade, you should have an idea of where you should exit for a loss, if it does not work out.

Working back from this, you can see how much of your capital you should put into an individual trade. It could be as much as 10% or 20%, and still work out to no more than a 2% loss if the trade fails.

When you are working out how much capital to risk on any individual trade, you should always calculate on the basis of the capital that you have left, and not necessarily on what you started your trading with. Trading accounts can go up and down over time, and it is unwise to assume you can afford to risk the same amount once you have suffered some losses. Similarly, if your account has been in profit, you may find that you can increase the size of your trade comfortably.

When you are looking at position sizing in greater depth, you also need to figure out just how much of your capital you are putting in any particular market sector. If you are risking all of your trades losing at the same time, because they are in basically similar stocks, then you're still taking on too much risk even if you have sized the individual trades correctly. It works out the same as if you had put a bigger trade on just one of the similar stocks, and you can see that would not be advisable.