Position sizing is the way to determine or estimate appropriate number of contracts or shares to trade based on your risk tolerance and capital. Here are some steps to consider when doing position sizing:

1. Determine your risk tolerance: The first step in position sizing is to determine your risk tolerance. This includes assessing how much of your capital you are willing to lose on any one trade.
2. Calculate your risk per trade: Once you have determined your risk tolerance, you can calculate the amount of risk an individual is willing to take on for each trade. This can be done by dividing your risk tolerance by the number of trades you plan to make.
3. Determine the stop-loss level: A stop-loss is an order to automatically close a trade if it reaches a certain level of loss. The stop-loss level should be set at a level that is consistent with your risk per trade.
4. Use a position sizing calculator: There are various position sizing calculators available online that can help you calculate the appropriate number of contracts or shares to trade based on your risk tolerance and capital.
5. Monitor and adjust: As the market conditions change, you may need to adjust your position size. Monitor your trades and adjust your position size as needed to ensure that you are not taking on too much risk.
6. Use proper leverage: Leverage is the use of borrowed capital to increase the potential returns of an investment. But it also increases the risk. It's important to use leverage responsibly and make sure you understand the potential risks before using it.

Let's look through an example of how position sizing might work in practice:

Let's say you have a trading account with $100,000 and you have determined that your risk tolerance is 2% of your capital per trade. This means you are willing to risk $2,000 (2% of $100,000) on any one trade.

You've also decided that you will use a stop-loss order to automatically close a trade if it reaches a loss of $1,000.

Based on this information, you can use a position sizing calculator to determine the appropriate number of shares or contracts to trade.

Let's say you are considering trading XYZ stock. The current price of XYZ stock is $50 and the stop-loss is set at $48. The calculator would determine that you should trade 400 shares of XYZ stock ($1,000 / ($50 - $48) = 400 shares).

If the stock's price falls to $48, your stop-loss will be triggered and you will lose $1,000. Since you were willing to risk 2% of your capital, which is $2,000, this trade represents half of your risk tolerance.

You can also adjust your position size based on the volatility of the underlying asset. For more volatile assets, you may want to trade smaller position size to mitigate the risk.

It's important to remember that the example provided is just one scenario and it's important to do your own research and find what works best for you. Also, it's important to note that past performance is not a guarantee of future results.