RISK MANAGEMENT & POSITION SIZING
To become successful in trading its not that what your system win rate or risk reward is ;rather its the Risk management. Every professional trader manage their risk and not trade with random position sizing. They're very strict for the same. Most of the new traders either don't know what the term is or they don't take it seriously. But it's the most crucial part of trading. Without knowing and applying this no one can be profitable in this business in the long run. Quite complicated, right? Don't worry I'm gonna explain with example.
Solution: if you manage your position sizing, risk will be managed automatically. So how to do this? Very simple. Let's assume you have 1,00,000 capital(For Only swing trades).
1. Don't take any trade just randomly. For example, you identified 5 breakout stocks and invested 20k, 10k, 50k, and so on in each without calculating the risk. In this case those all stocks may have different % of risk or SL. So YOU CAN'T WIN!
2. Define your risk per trade = 0.5% to 1%( Don't take risk more than 1% strictly) i.e 500 to 1k per trade.
3. Now, How to calculate the position size per trade for 1,00,000 capital.
Ex- Let's assume you want to go long(buy) a stock that's price is ₹50.
Position size = loss per trade (1%of 1lac) ÷ stoploss price ( lets take ₹5)
= ₹1000 ÷ ₹5 = 200quantity.
Therefore as per your risk defined, you can buy 200 quantity of that perticular stock.
3. Strictly buy only those stocks which have high probability of at least 1:3 risk-reward.
Conclusion:
If you take 10 trades in a row and win rate is only 30%. Means you take loss in 7 trades and win in 3 of them. What will be your P&L? Let's see...
Total Loss= 7×1,000= 7,000
Total Profit= 3× 3,000= 9,000
Therefore, Net Profit = 9,000- 7,000= 2,000. Great!
If your win rate is just 50%
Means you win 5 trades and lose in 5 trades.
Total Profit = 5×3,000=15,000
Total Loss = 5 × 1,000 = 5.000
Therefore, Net Profit = 15,000 - 5,000 = 10,000
Awesome! Right?
Remember you can have more than 50% win rate.
Now how to make the process very easy and bit automated. Its very simple...
1) Go to the tools section..
2) Choose the 'LONG POSITION' tool (RR tool)
3) Apply it at the entry price.
4) Go to the settings of the RR tool
5) Edit the risk% to 1% and save it.
6)Now it'll automatically calculate the position sizing whenever you apply it on any chart. You can see it when you click on it in the middle @ entry price line.
Example- you can see I've applied this tool in this chart too for your reference. I use this tool in every chart.
If you have any questions write in the comments section.
If you like don't forget to hit the like button.
Solution: if you manage your position sizing, risk will be managed automatically. So how to do this? Very simple. Let's assume you have 1,00,000 capital(For Only swing trades).
1. Don't take any trade just randomly. For example, you identified 5 breakout stocks and invested 20k, 10k, 50k, and so on in each without calculating the risk. In this case those all stocks may have different % of risk or SL. So YOU CAN'T WIN!
2. Define your risk per trade = 0.5% to 1%( Don't take risk more than 1% strictly) i.e 500 to 1k per trade.
3. Now, How to calculate the position size per trade for 1,00,000 capital.
Ex- Let's assume you want to go long(buy) a stock that's price is ₹50.
Position size = loss per trade (1%of 1lac) ÷ stoploss price ( lets take ₹5)
= ₹1000 ÷ ₹5 = 200quantity.
Therefore as per your risk defined, you can buy 200 quantity of that perticular stock.
3. Strictly buy only those stocks which have high probability of at least 1:3 risk-reward.
Conclusion:
If you take 10 trades in a row and win rate is only 30%. Means you take loss in 7 trades and win in 3 of them. What will be your P&L? Let's see...
Total Loss= 7×1,000= 7,000
Total Profit= 3× 3,000= 9,000
Therefore, Net Profit = 9,000- 7,000= 2,000. Great!
If your win rate is just 50%
Means you win 5 trades and lose in 5 trades.
Total Profit = 5×3,000=15,000
Total Loss = 5 × 1,000 = 5.000
Therefore, Net Profit = 15,000 - 5,000 = 10,000
Awesome! Right?
Remember you can have more than 50% win rate.
Now how to make the process very easy and bit automated. Its very simple...
1) Go to the tools section..
2) Choose the 'LONG POSITION' tool (RR tool)
3) Apply it at the entry price.
4) Go to the settings of the RR tool
5) Edit the risk% to 1% and save it.
6)Now it'll automatically calculate the position sizing whenever you apply it on any chart. You can see it when you click on it in the middle @ entry price line.
Example- you can see I've applied this tool in this chart too for your reference. I use this tool in every chart.
If you have any questions write in the comments section.
If you like don't forget to hit the like button.
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