Educational guide

How Entry, Stop, and Position Size Define Planned Risk

Position sizing connects a documented entry and structural stop to a chosen dollar-risk assumption. It makes the plan measurable before a trade is recorded.

Published and reviewed by Millwheel Oy · Updated October 31, 2026

Source register

What each source contributes

MSPT portfolio risk and trade planning methodology

Role: Defines how MSPT separates position value, planned trade risk, structural stops, and plan-relative R.
Timing: Reviewed with the current public MSPT workflow.
Limitations: The methodology organizes user assumptions and does not select an appropriate personal risk level.

SEC investor information on stop orders

Role: Explains the basic behavior of stop orders and why a stop price is not an execution guarantee.
Timing: Public investor-education reference accessed for this guide.
Limitations: Broker order types and handling rules vary; users must review their broker's current terms.

Begin with the plan, not the share count

For a planned long stock position, initial risk per share is the intended entry price minus the structural stop. The stop should represent a condition that weakens the thesis or setup, rather than an arbitrary amount the user would prefer not to lose.

Planned position risk equals risk per share multiplied by the number of shares. Trading costs, slippage, gaps, and currency effects remain outside that simplified amount.

Initial risk per share = planned entry − structural stop for a long stock position.
Planned position risk = initial risk per share × shares.
Shares from a dollar-risk assumption = dollar-risk assumption ÷ initial risk per share, rounded down to a whole tradable quantity.

Worked example

Assume a planned entry of $50, a structural stop of $46, and a user-selected maximum planned loss of $400. The initial risk is $4 per share. Dividing $400 by $4 gives 100 shares before trading costs, slippage, or gap risk.

At 100 shares, the planned purchase value is $5,000 while the simplified initial risk is $400. Position value and planned risk are different measures. This example illustrates the arithmetic and is not a sizing recommendation.

Review the result in portfolio context

Compare the resulting holding weight with the selected portfolio, including its displayed cash treatment.
Check existing exposure to the same company, industry, sector, currency, and underlying business drivers.
Record the thesis evidence, invalidation condition, expected thesis date, and next review date.
Recalculate when the intended entry, structural stop, quantity, or portfolio value changes.

Important limitations

A stop price is a planning reference and does not guarantee execution at that price.
Overnight gaps, fast markets, liquidity, and order handling can produce a larger realized loss.
Options require contract-specific maximum-loss, multiplier, liquidity, expiration, and assignment analysis.
Personal risk capacity, objectives, taxes, and time horizon are outside this calculation.