Bitcoin / Tether USDEducation
📌Position Sizing AND Stress Curve
Updated
Try to find where your current stress level is on the diagram.
If you are a trader and already have taken position , how much is your position size % ? Do you think there is a correlation between your stress level and your current position size , then subsequently your performance ?
If you are in red level, now is a good time to seek some serious change. Trading in itself is a very stressful job, especially when we are not proficient in the psychology of trading and do not pay much attention to the important rules of risk and capital management. maybe Slipping only one 1% of these rules has terrible consequences for us.
WHAT IS STRESS (in general)?
Everyone experiences stress at different points in their life, and in small doses it is essential to motivate us. Too much stress, though, can be overwhelming and leave us burnt-out, filled with anxiety or anger, and unable to act. Stress is a feeling of emotional or physical tension. It can come from any event or thought that makes you feel frustrated, angry, or nervous. Stress is your body's reaction to a challenge or demand. In short bursts, stress can be positive, such as when it helps you avoid danger or meet a deadline
Stress causes wear and tear of our bodies due to demands made by our life. The Public Health Services estimate that there are one million premature deaths in America each year. In this, 75% of the people were suffering from stress-related disorders. Americans are suffering from various problems. The number of Americans suffering is high in number. The various problems are:
30 million blood vessel diseases
1 million heart attacks
8 million cases of ulcers
12 million cases of alcoholism
WHAT DOES IT FEEL LIKE?
Problem stress can manifest in many different ways:
wanting to relax but being unable to let go
feeling prolonged anxiety or worry
feeling depressed and unmotivated
sleep problems
increased use of alcohol / drugs to self-medicate
Stress can also cause a variety of physical symptoms:
change in appetite
tightness and pain in shoulders, neck and back
increased use of alcohol / drugs to self medicate
digestive problems
autoimmune problems (eczema, arthritis, ulcers)
Trading-Specific Stresses:
In the above paragraphs, we have seen the different stress subsequences in our social life. But there are also many stressful situations in trading that traders perceive.
Trading is inherently a job full of anticipated and unforeseen risks. .Each of which can cause stress on the trader and affect his performance!
Even Being idle and not doing anything can also be stressful. The fact that you could make money if you were present in the market is itself very stressful. You can watch your position double overnight sometimes if you don’t do anything. Similarly, you may sit on a losing trade while it goes down in value. This loss situation is stressful, which is a result of doing nothing.
As a trader ,we trade the risk to make money , it sounds very exiting and enjoying when we can control our risk and profit ! there is a tiny distinction and span between successful traders and unsuccessful traders ! When they can manage their position size and risk/reward in such a way that they can have the most profit and the least loss with maximum performance.
abnormal Stress limits our ability to handle a large amount of information in trading. Which is why we are not successful most of the times. For some traders who use to trade with big position size( more than1%- 5% of their total net) , stress is equivalent to losing. If they suffer a lose In these cases, because a large amount of position is involved and it is difficult to control it can be the Biggest in the speculative loss, which is a trading-specific stress. Since losses are unacceptable for many, they tend not to close their position in the hope of recovering their losses , so their losses will get bigger and bigger . The psychological impact of a large loss upon an average trader can be devastating, because Daniel Kahneman in the book of Thinking, Fast and Slow by , he says that for human- being the impact of any loss is bigger than impact of equivalent profit !
-In a pessimistic scenario ,Suppose you open an average of 10 positions a day, and if all your positions are closed at a loss
>>With a risk of 1% per trade; You do not lose about 10% at the end of the day
>>But with 5% per trade, you lose more than 37% at the end of the day
>>And with 10%,you lose more than 60% of whole capital after 10 unsuccessful trade per day . So in the same proportion; Size position can greatly affect our stress level and disrupt our performance!
In this situations, our brain can no longer make any right decisions and emotions overwhelm us especially when we are at a loss, and then the likelihood of committing human error is greatly increased.
Conclusion
So in this article, we can figure out what can greatly affect our stress in trading is the amount of volume in a trade especialy in perpetual future markets ,
Why does a trader increase the position size with thoughtless, recklessness and carelessness, maybe it is due to ignorance or maybe it is high self-confidence.
Anyway, if one can 100% predict the future trend of a trade, one might be able to earn hundreds or thousands or even millions of dollars in a short time with the Leverage X100, but the problem is that we are in the trading and financial markets with probabilities. We are dealing and no one can predict even 10% of the next moves with confidence. So It's so important to control the exact amount of your risk ,loss and possible profit in each trade by choosing the right amount for position size and then the risk /reward ratio.
Every person reacts to stressful events differently. What might be stressful for one person might not be stressful for another one or maybe a pleasurable game . All these together produce fear and anxiety in people.
The purpose of this article is not to let you know various types of stresses in trading , It was more about the stress of position size in particular and how it can affect your trading style.
But the result being in high stress level for all is loss in trading. You can at least now realize how dominating stress can be. In coming articles, we will help you protect from its effects.
You can self-evaluate yourself on parameters like stress susceptibility, stress exposure and stress protection.
In general, we will try to reduce general stress and trading specific stress. Later we will also discuss stress prevention techniques, relaxation procedures, and how not to allow stress to affect your trading performance.
(The reason that inspired me to write this article was mostly because of a friend who is a trader and he had invested in Luna and was severely bankrupt and now more than his financial problems he is struggling with a lot mental and psychological problems , and was asked me for help.
Maybe it was his bad luck but his problem was when He was optimistic for a immediate recovery after any Luna's downfall , he traded in a large position and with every further reduction he bought again at a lower level in the hope of a return to compensate, but we all saw how far Luna decreased . although this strategy( DCA ) may work well sometimes , but if he had considered the position size and risk measurement , he didn't lose more than 200k overnight.)
Source: lifehack.org- wetalktrade.com- phil-hills.com
If you are a trader and already have taken position , how much is your position size % ? Do you think there is a correlation between your stress level and your current position size , then subsequently your performance ?
If you are in red level, now is a good time to seek some serious change. Trading in itself is a very stressful job, especially when we are not proficient in the psychology of trading and do not pay much attention to the important rules of risk and capital management. maybe Slipping only one 1% of these rules has terrible consequences for us.
WHAT IS STRESS (in general)?
Everyone experiences stress at different points in their life, and in small doses it is essential to motivate us. Too much stress, though, can be overwhelming and leave us burnt-out, filled with anxiety or anger, and unable to act. Stress is a feeling of emotional or physical tension. It can come from any event or thought that makes you feel frustrated, angry, or nervous. Stress is your body's reaction to a challenge or demand. In short bursts, stress can be positive, such as when it helps you avoid danger or meet a deadline
Stress causes wear and tear of our bodies due to demands made by our life. The Public Health Services estimate that there are one million premature deaths in America each year. In this, 75% of the people were suffering from stress-related disorders. Americans are suffering from various problems. The number of Americans suffering is high in number. The various problems are:
30 million blood vessel diseases
1 million heart attacks
8 million cases of ulcers
12 million cases of alcoholism
WHAT DOES IT FEEL LIKE?
Problem stress can manifest in many different ways:
wanting to relax but being unable to let go
feeling prolonged anxiety or worry
feeling depressed and unmotivated
sleep problems
increased use of alcohol / drugs to self-medicate
Stress can also cause a variety of physical symptoms:
change in appetite
tightness and pain in shoulders, neck and back
increased use of alcohol / drugs to self medicate
digestive problems
autoimmune problems (eczema, arthritis, ulcers)
Trading-Specific Stresses:
In the above paragraphs, we have seen the different stress subsequences in our social life. But there are also many stressful situations in trading that traders perceive.
Trading is inherently a job full of anticipated and unforeseen risks. .Each of which can cause stress on the trader and affect his performance!
Even Being idle and not doing anything can also be stressful. The fact that you could make money if you were present in the market is itself very stressful. You can watch your position double overnight sometimes if you don’t do anything. Similarly, you may sit on a losing trade while it goes down in value. This loss situation is stressful, which is a result of doing nothing.
As a trader ,we trade the risk to make money , it sounds very exiting and enjoying when we can control our risk and profit ! there is a tiny distinction and span between successful traders and unsuccessful traders ! When they can manage their position size and risk/reward in such a way that they can have the most profit and the least loss with maximum performance.
abnormal Stress limits our ability to handle a large amount of information in trading. Which is why we are not successful most of the times. For some traders who use to trade with big position size( more than1%- 5% of their total net) , stress is equivalent to losing. If they suffer a lose In these cases, because a large amount of position is involved and it is difficult to control it can be the Biggest in the speculative loss, which is a trading-specific stress. Since losses are unacceptable for many, they tend not to close their position in the hope of recovering their losses , so their losses will get bigger and bigger . The psychological impact of a large loss upon an average trader can be devastating, because Daniel Kahneman in the book of Thinking, Fast and Slow by , he says that for human- being the impact of any loss is bigger than impact of equivalent profit !
-In a pessimistic scenario ,Suppose you open an average of 10 positions a day, and if all your positions are closed at a loss
>>With a risk of 1% per trade; You do not lose about 10% at the end of the day
>>But with 5% per trade, you lose more than 37% at the end of the day
>>And with 10%,you lose more than 60% of whole capital after 10 unsuccessful trade per day . So in the same proportion; Size position can greatly affect our stress level and disrupt our performance!
In this situations, our brain can no longer make any right decisions and emotions overwhelm us especially when we are at a loss, and then the likelihood of committing human error is greatly increased.
Conclusion
So in this article, we can figure out what can greatly affect our stress in trading is the amount of volume in a trade especialy in perpetual future markets ,
Why does a trader increase the position size with thoughtless, recklessness and carelessness, maybe it is due to ignorance or maybe it is high self-confidence.
Anyway, if one can 100% predict the future trend of a trade, one might be able to earn hundreds or thousands or even millions of dollars in a short time with the Leverage X100, but the problem is that we are in the trading and financial markets with probabilities. We are dealing and no one can predict even 10% of the next moves with confidence. So It's so important to control the exact amount of your risk ,loss and possible profit in each trade by choosing the right amount for position size and then the risk /reward ratio.
Every person reacts to stressful events differently. What might be stressful for one person might not be stressful for another one or maybe a pleasurable game . All these together produce fear and anxiety in people.
The purpose of this article is not to let you know various types of stresses in trading , It was more about the stress of position size in particular and how it can affect your trading style.
But the result being in high stress level for all is loss in trading. You can at least now realize how dominating stress can be. In coming articles, we will help you protect from its effects.
You can self-evaluate yourself on parameters like stress susceptibility, stress exposure and stress protection.
In general, we will try to reduce general stress and trading specific stress. Later we will also discuss stress prevention techniques, relaxation procedures, and how not to allow stress to affect your trading performance.
(The reason that inspired me to write this article was mostly because of a friend who is a trader and he had invested in Luna and was severely bankrupt and now more than his financial problems he is struggling with a lot mental and psychological problems , and was asked me for help.
Maybe it was his bad luck but his problem was when He was optimistic for a immediate recovery after any Luna's downfall , he traded in a large position and with every further reduction he bought again at a lower level in the hope of a return to compensate, but we all saw how far Luna decreased . although this strategy( DCA ) may work well sometimes , but if he had considered the position size and risk measurement , he didn't lose more than 200k overnight.)
Source: lifehack.org- wetalktrade.com- phil-hills.com
Note
Ideal position size is a simple mathematical formula:YOUR ACCONT BALANCE * (YOUR RISK PER TRADE % ÷ YOUR STOP LOSS% ) = Ideal Position Size
Assume you have a $10,000 account and risk 1% of your account on each trade. You can risk up to $100 (money at risk), and want to trade BTC. You want to buy at $31000 and place a stop loss at 30K >> YOUR STOP-LOSS = (30K-31K)/31K= ~3.22%
Ideal Position Size=10,000$ *(1%/3.22%)=~3105$
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