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Positionsizing

Position Sizing: Learning to Lose Position sizing is one of the components of a trading plan, and it's important to be just as disciplined and consistent with this as with all other parts of the plan. Position sizing is defining how much we will risk for each and our objective is to consistently get the most profit with the least amount of risk. So, how much should you risk per trade? There is no one-size-fits-all answer, but to manage our risk consistently, we must establish simple, objective, and common-sense rules grounded in the realities of trading. Let's take a look at some of those realities • As traders, we should expect to lose more often than win and must learn how to manage losses effectively. • At some point, we will face drawdowns with many consecutive losses. • Successful trading results from a series of many trades and the compounding of gains, not just from being right on one or a few trades. In the video, I will show a simple guideline for calculating how much to risk per trade based on your risk tolerance over a series of trades and a drawdown number. I'm going to give you a default drawdown of 30 consecutive losses. For example, if you have a $10,000 account and don’t want to lose more than 15% ($1,500) of your account in drawdowns, you would divide $1,500 by the default drawdown of 30 stops, which would give you $50 per trade (1/2% of the account per trade). This plan allows you to lose 30 times in a row while staying within your risk tolerance. This doesn’t mean you have to risk the entire $50 per trade; consider it a maximum amount. If you are relatively new to trading or still fine-tuning your approach, I suggest trading very small amounts. Less than 1/4% of your account balance. Choose what feels comfortable and stick to it consistently. This allows you to make many trades while learning and not damage yourself. Be deliberate and create a plan to earn the right to size. For instance, require at least a small profit after two months and comfort with your method before incrementally increasing your risk per trade. Repeat this process every two months before increasing your size again. It's this kind of work that helps to balance your psychological mindset. You don't get that from books about trading psychology, you get it from grounded and deliberate practice. Use my position sizing calculations as guidelines and adjust accordingly. Once it is set, be consistent in what you do.
NASDAQ:ASOEducation
by ShaneBlankenship
Avoid Forex Mayhem with Good Risk ManagemenTrading forex? Stop gambling with your capital! This video exposes the massive mistake new traders make - using inconsistent lot sizes. It's a recipe for disaster, blowing accounts and crushing dreams. But there's good news. Discover the secret weapon of successful traders: consistent lot sizing. In this actionable video, you'll learn: Why fluctuating lot sizes blindfold you to risk and leave you exposed The simple formula to calculate safe and sustainable lot sizes How consistent sizing fuels confidence and boosts profits Bonus tips to maximize your forex trading performance Say goodbye to trading nightmares and hello to controlled growth! Watch this video now and take control of your forex future. P.S. Don't be the trader left behind. Watch before it's too late!
Education
by tradingwithanthony
Kelly Criterion and other common position-sizing methodsWhat is position sizing & why is it important? Position size refers to the amount of risk - money, contracts, equity, etc. - that a trader uses when entering a position on the financial market. We assume, for ease, that traders expect a 100% profit or loss as a result of the profit lost. Common ways to size positions are: Using a set amount of capital per trade . A trader enters with $100 for example, every time. This means that no matter what the position is, the maximum risk of it will be that set capital. It is the most straight-forward way to size positions, and it aims at producing linear growth in their portfolio. Using a set amount of contracts per trade . A trader enters with 1 contract of the given asset per trade. When trading Bitcoin, for example, this would mean 1 contract is equal to 1 Bitcoin. This approach can be tricky to backtest and analyse, since the contract’s dollar value changes over time. A trade that has been placed at a given time when the dollar price is high may show as a bigger win or loss, and a trade at a time when the dollar price of the contract is less, can be shown as a smaller win or loss. Percentage of total equity - this method is used by traders who decide to enter with a given percentage of their total equity on each position. It is commonly used in an attempt to achieve ‘exponential growth’ of the portfolio size. However, the following fictional scenario will show how luck plays a major role in the outcome of such a sizing method. Let’s assume that the trader has chosen to enter with 50% of their total capital per position. This would mean that with an equity of $1000, a trader would enter with $500 the first time. This could lead to two situations for the first trade: - The position is profitable, and the total equity now is $1500 - The position is losing, and the total equity now is $500. When we look at these two cases, we can then go deeper into the trading process, looking at the second and third positions they enter. If the first trade is losing, and we assume that the second two are winning: a) 500 * 0.5 = 250 entry, total capital when profitable is 750 b) 750 * 0.5 = 375 entry, total capital when profitable is $1125 On the other hand, If the first trade is winning, and we assume that the second two are winning too: a) 1500 * 0.5 = 750 entry, total capital when profitable is $2250 b) 2250 * 0.5 = 1125 entry, total capital when profitable is $3375 Let’s recap: The trader enters with 50% of the capital and, based on the outcome of the first trade, even if the following two trades are profitable, the difference between the final equity is: a) First trade lost: $1125 b) First trade won: $3375 This extreme difference of $2250 comes from the single first trade, and whether it’s profitable or not. This goes to show that luck is extremely important when trading with percentage of equity, since that first trade can go any way. Traders often do not take into account the luck factor that they need to have to reach exponential growth . This leads to very unrealistic expectations of performance of their trading strategy. What is the Kelly Criterion? The percentage of equity strategy, as we saw, is dependent on luck and is very tricky. The Kelly Criterion builds on top of that method, however it takes into account factors of the trader’s strategy and historical performance to create a new way of sizing positions. This mathematical formula is employed by investors seeking to enhance their capital growth objectives. It presupposes that investors are willing to reinvest their profits and expose them to potential risks in subsequent trades. The primary aim of this formula is to ascertain the optimal allocation of capital for each individual trade. The Kelly criterion encompasses two pivotal components: Winning Probability Factor (W) : This factor represents the likelihood of a trade yielding a positive return. In the context of TradingView strategies, this refers to the Percent Profitable. Win/Loss Ratio (R) : This ratio is calculated by the maximum winning potential divided by the maximum loss potential. It could be taken as the Take Profit / Stop-Loss ratio. It can also be taken as the Largest Winning Trade / Largest Losing Trade ratio from the backtesting tab. The outcome of this formula furnishes investors with guidance on the proportion of their total capital to allocate to each investment endeavour. Commonly referred to as the Kelly strategy, Kelly formula, or Kelly bet, the formula can be expressed as follows: Kelly % = W - (1 - W) / R Where: Kelly % = Percent of equity that the trader should put in a single trade W = Winning Probability Factor R = Win/Loss Ratio This Kelly % is the suggested percentage of equity a trader should put into their position, based on this sizing formula. With the change of Winning Probability and Win/Loss ratio, traders are able to re-apply the formula to adjust their position size. Let’s see an example of this formula. Let’s assume our Win/Loss Ration (R) is the Ratio Avg Win / Avg Loss from the TradingView backtesting statistics. Let’s say the Win/Loss ratio is 0.965. Also, let’s assume that the Winning Probability Factor is the Percent Profitable statistics from TradingView’s backtesting window. Let’s assume that it is 70%. With this data, our Kelly % would be: Kelly % = 0.7 - (1 - 0.7) / 0.965 = 0.38912 = 38.9% Therefore, based on this fictional example, the trader should allocate around 38.9% of their equity and not more, in order to have an optimal position size according to the Kelly Criterion. The Kelly formula, in essence, aims to answer the question of “What percent of my equity should I use in a trade, so that it will be optimal”. While any method it is not perfect, it is widely used in the industry as a way to more accurately size positions that use percent of equity for entries. Caution disclaimer Although adherents of the Kelly Criterion may choose to apply the formula in its conventional manner, it is essential to acknowledge the potential downsides associated with allocating an excessively substantial portion of one's portfolio into a solitary asset. In the pursuit of diversification, investors would be prudent to exercise caution when considering investments that surpass 20% of their overall equity, even if the Kelly Criterion advocates a more substantial allocation. Source about information on Kelly Criterion www.investopedia.com
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Education
by sofex
2
Position Size Calculation with Fees - Handle any LeverageExample: The account size is $4500. We risk 2%, 90 cash, for this 2R trade. If the trade idea is a success we would now have 4678 cash in our account a profit of: 178 cash And if loss, a total of 4410 cash, 90 cash loss) Is this correct? Explanation: The example seems correct but only without the fees in calculation. Even small fees like e.g. 0.04% Taker (market orders) and 0.02% Maker (limit orders) add up a lot. A lot! The example does need a position size of $56250 , which would be $22.5 in fees just to open the position and the same amount again when the stop loss (market order) triggers or $11.25 when exit with a limit order. The example does clearly need a leverage of 15 or higher to open that position size. - Tradeable balance with 15x leverage: 4500 * 15 = 67500 - And to get a loss of 90 cash within 0.16 %: 56250 / 100 * 0.16 = 90 See Image on Chart: Calculation without fees We will be fine with any kind of Leverage if we calculate it like that on every trade. The PnL is calculated from the real account balance. So we are on the right track to not blow our account. If we calculate it with the Fees in mind, the example with 0.04% fees for open and close, then the position size would be $28125 See Image on Chart: Calculation with fees The calculations show, even when it hits the Profit Target, the real Risk Reward lowers by a large amount . (The Example uses the same taker fee for open and close) I personally recommend to automate those ever recurring calculations and set the orders via an API. Relative easy to code in e.g. Python. I'm not allowed to link any external links here but some tools can be found on my Twitter (I'm not really active there otherwise): - Some link to a Microsoft Excel sheet, which was used for the calculation images. It may be useful for some, just make a copy. - And a public open source API Trade App can be found on my GitHub, link in the same Twitter feed. No other funny links else. And as last goodie: A small snippet example used in my automated strategies in PineScript, strategy.equity represents the account balance: //Example 0.001 is minumum order varip input_mathround = input(3, 'Decimal Math Round Size') varip pnllosspercent = input(2, 'Dynamic PnL Loss - Percent of Balance') getLongSizeDynamic(_entry, _sl) => pnl = strategy.equity / 100 * pnllosspercent sl_percent = (_entry - _sl)/_entry size_cash = pnl / (sl_percent*100) * 100 size_r = 1 / _entry * size_cash size = math.round(size_r, input_mathround) size There are for sure different ways to optimise the math for the own liking. This 'tutorial' is meant to give small insight into a proper position sizing, that you may too will not fear the leverage as useful tool when used correct. With the calculations above, no matter if 10, 50, 100 or even crazy 1000x Leverage shall not blow our accounts! Still always keep the fees in mind, they take our money!
INDEX:BTCUSDEducation
by Hhan44
Position sizing 101 - how to avoid crippling lossesPosition sizing is determining the correct size of the position based on the amount of money you risk on the particular trade. Before you can do that, you need to figure out what is the maximum acceptable risk of the trade. That risk is usually expressed as a % of your balance, that you are willing to lose. To make sure you don’t lose more than this amount traders set a Stop Loss order which is the real maximum exposure of your position. If you don’t use a stop loss, you are exposing your entire portfolio! Where to put a stop loss? That’s where Technical Analysis can be handy. The majority of retail traders would look at the chart to find out – usually behind some support/resistance level or based on some volatility indicator, such as ATR Rule of thumb: Risk between 1-3% of your portfolio balance on each position. This way any single individual loss won’t wipe your account and break your spirit. And more importantly, even a string of losses will leave you with enough ammunition to recoup the losses. Have a clear approach to risk: 1. Set a risk limit for each trade, asset in general, day, week, and month (you won’t risk more than X account) 2. Determine the right position size and start small 3. Increase the position size of trades slowly if your account grows 4. Lower size or switch back to paper trading if your account doesn’t Two types of position sizing methods: Fixed and flexible Fixed position size Using the same position size for every trade Good for finding out if your strategy has an edge Make sure you come back and reevaluate position size periodically. Flexible position size Using a percentage of the current balance Cluster of wins makes every following win larger Cluster of losses makes every following loss smaller How to calculate the correct position size: You need to know 1. Trading account size 2. Acceptable risk (in % per each trade) 3. Invalidation point (in form of a distance from the open price) The formulae: Position size = Trading account size x Acceptable risk / Invalidation Example: 1. Trading account size = $10,000 2. Acceptable risk = 1% 3. Invalidation point = 4% drop in market price Position size = $10,000 * 0,01 / 0,04 = $2,500 This way you will always risk losing $100 no matter where your Stop Loss goes! If Stop Loss must be wider, say 8%, the calculation is: Position size = $10,000 * 0,01 / 0,08 = $1,250 Doubling the distance to our stop loss has us reducing our position size by half to maintain the same possible loss. How to set position size in Tradingview 1. Use the Long position or Short position drawing tool 2. Input your account balance 3. Select the risk you're willing to undertake - either as a % of your account balance or as a monetary value 4. Enter the market price of your Stop Loss 5. Look at the "Quantity" field in the drawing tool = that is the position size you should use to adhere to your risk settings.
CME_MINI:ES1!Education
by CleoFinance
2
When to up your share size?Many traders have 2 or more trade set ups. It is important to know the following: 1)The risk of your trade must be in accordance with the winning percentage of the trade set up. 1)Your share size should increase or decrease in accordance with the winning percentage of the trade set up. * Share size increase must be in accordance to you account size (account management) These concepts are what separates really good traders from average traders.
BEducation
by UnknownUnicorn37963351
3
Position Sizing StrategiesPosition Sizing Traders spend much of their time looking at charts and analyzing using technical or fundamental analysis, or a combination of both. While this indeed is a very good thing to spend time on, not all traders take their time to focus on risk management, and more specific position sizing. I see a lot of new traders or old traders which trade only to have their accounts blown up by taking random positions with no plan whatsoever. Proper position sizing is a key element in risk management and can determine whether you live to trade another day or not. Basically your position size is the number of shares you take on a trade. It can help you from risking too much on trade and blowing up your account. Without knowing how to size your positions properly. You may end up taking trades that are far too large for your account. In such cases, you become highly vulnerable when the market moves even just a few points against you. Your position size or trade size is more important than your entry and exit when trading or investing. You can have the best strategy in the world. But if your trade size is too big or too small, you will either take too much or too little risk. So how do you prevent yourself from risking too much? How do you know the right quantity to buy or to sell when you initiate a position? Let's say you have $10,000 in your account, and there's a stock valued at $100 you like and want to buy. Do you buy 100 shares, 10 shares, or some other number? This is the question you must answer to how to determine your position size. If you decide to spend your entire account balance and buy 100 shares, then you will have a 100% commitment to the stock and this is not indicated also in taking a position that represents a large portion of your total portfolio. There is also the opportunity cost involved, you will have to pass up other trades that you may have liked to enter. Position Sizing is a critical issue that a trader needs to know beforehand and to do on the fly. It's as important as picking the right stock or currency to invest. Position Sizing Strategies ☀️ There are several approaches to position sizing and I will run down some of the more popular ones. 1️⃣ The first one and the most common one is "Fixed percentage per trade". Position Sizing can be based on the size of an overall portfolio. This means a percentage of that overall capital will be predetermined per trade and will not be exceeded. That would be 1% or even 5%. This fixed percentage is an easy way for you to know how much you are buying when you buy to use a simple example of fixed percentage position sizing. Let's take again the $10,000 account size and a $100 stock. If you take a simple one-person position based on your account size that comes down to a single share, you may be thinking you are no better than the person with a $100 account buying one share. The difference is that the $100 account holder has a 100% position size while the $10,000 account holder is putting just one percent at risk. Which position size allows a trader to sleep better at night? Of course, the second position sizing helps control the risk. A 1% hard limit on each trade allows you to tolerate many losses in your search for profits. Protecting your capital is your primary job. Your secondary job is allowing room in your portfolio to find other trading opportunities. The fixed percentage amount is an easier approach to accomplishing this 2️⃣ The second risk management approach involves a "fixed dollar amount per trade". This approach also uses a fixed amount for this time. It's a fixed dollar amount per trade, rather than a percentage of the actual portfolio. This involves choosing a number again and using the same $10,000 portfolio as an example. So you decide you won't spend any more than $200 on any trade. For traders with small account sizes, this can be an attractive approach because it limits how much you can lose. However, it also limits what stocks you can buy. You will have to roll out some securities based solely on their price. Of course, this is not necessarily a bad thing. 3️⃣ The third approach is "volatility-based position sizing" A more complex approach, but one that allows for more flexibility is position sizing based on the volatility of the security you plan to buy. It's more dynamic because it doesn't treat each stock the same. This approach allows you to drill down and exercise finer control over your portfolio. For example, growth stocks will invariably be more volatile, and that volatility will be reflected in your portfolio. To reduce that overall risk on your portfolio. You wouldn't buy less high volatility stocks than you would lower volatility stocks. You can measure volatility with something as simple as a standard deviation over a given period, say 15 or 10 trading days. Then depending on the deviation, you adjust the number of shares you buy when you initiate a position. This allows lower volatility stocks to have more weight in your portfolio than higher volatility ones. Position Sizing based on this ideology lowers the overall volatility within a portfolio. This strategy is frequently used in large portfolios. Even longer-term traders and investors face position sizing questions for them when the price of a security with their holding goes down. It represents more value. Adding to their position, in this case, is referred to as averaging down. Long-term traders can decide to average down using similar position sizing approaches by risking either a fixed dollar amount or a percentage amount when the stock trades down you can use standard deviation here as well to help figure out the dollar amount. Some additional common sense risk parameters seem worth mentioning and may be incorporated into your trade plan. For example, Once you've figured out how much you're comfortable losing a stop loss level for each trade should be determined and placed in the market. A seasoned trader will generally know where to put their stop loss orders after having optimized their trading plan and chart analysis is often performed when setting stop-loss orders rules of thumb should be followed when you use stops to manage risk on your positions. By now I hope you realized that correct position sizing is crucial. You should always consider how much you buy when you buy and also know how you came up with that number. Regardless of your account size. Take the time to come up with a consistent approach that matches your trading style and then stick to it. You can incorporate flexibility as well. For example, if you're willing to take more risks with your portfolio, you can die a lot of the person that you use. sound money management techniques can help make an average trader better and a good trader becomes great. For example, a trader that is only right half of the time, but gets out of losing trades before the loss becomes significant and knows the right winners to a substantial profit would be way ahead of most others with trade with no clear plan of action whatsoever. And you have to find the right balance because if you risk too little and your account won't grow and if you risk too much, your account can be destroyed in a few bad trades. 🌱 If you found value and learn something new, leave me a like to show your support. 👍🏼❤️
INDEX:BTCUSDEducation
by parissap
23
📌Position Sizing AND Stress CurveTry 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
Education
by PRO_SMART_Trader
3
When you should use leverage in your trades?When you should use leverage in your trades? I’m going to answer this question, but first, we have to mention two other questions to be answered. Q1: What is a reasonable trade? An order in which the entry point, stop loss, and take profit are already pre-defined based on a good return strategy or rules. Q2: What is money management? Money management is to determine the percentage of risk on the total balance in each order and to know what your position size will be and how much your potential loss will be. We need to do some calculations to answer the first question. Let’s suppose your account balance is $100 and the maximum risk on your balance for each trade is 5%. This means that on a reasonable trade, your loss will be $5 at most. Besides that, you have a good trading opportunity with an entry point at $10, stop loss at $9, and profit point at $12, i.e. 10% potential risk and 20% potential reward for the position. Since we cannot lose more than $5 of our balance, we need a position size where the potential loss will not exceed $5. Which we can calculate with this formula: (Max risk on balance / position risk * 100). Which would be $50 in our case.  This means that we are only allowed to include $50 out of $100 in this trade; this would be $5 after a 10% loss.  Everything is normal and we can afford it, so we will do the trade. Now, let’s increase the max risk on balance to 20%. It means our potential loss would be at most $20. By doing the same calculations considering the same reasonable trade with 10% risk, our position size will be $200 while we do not have more than $100, so where do we get $200 from?! Yep! Leverage would help you in this case. So benevolent, isn’t it?  In this case, your leverage would be 2 and you can open a $200 position, but don’t forget you increased your account risk from 5% to 20% already. Note that the risk will be applied to your real asset. If your balance is $100 and the leverage is 10, the exchange will give you about $1000 to buy or sell. While the 5% of $100 is $5, the 5% of $1000 would be $50, which is 50% of your real asset. So calculating the risk on leverage balance is practically meaningless! What if we had 10 orders simultaneously? It means $100 will be split between 10 orders. For ease of calculation, we consider every 10 trades to be the same as what we had above, while each trade would have 10% of $100. In these conditions, each trade would again have a $50 position, but leverage will be 5! Having said that, we can conclude that leverage alone is meaningless and finds meaning alongside reasonable trade opportunities and money management. In the above explanations, for the ease of calculation and context understanding, I used rand but not necessarily correct values. For example, a risk ratio of 5% on balance is a really high risk or in the example of 10 trades at once, it is wrong to consider your balance as $100 at the start of each trade. In the worst-case scenario, you should deduct the loss of the previous trade from your balance for the next trade. From the link below, you can access the tool I prepared to calculate the position details. bit.ly Feel free to give your constructive feedback.
Education
by bhnmzm
2
Keeping Lot Sizes the SameHey Guys! Do you find your self increasing and decreasing the lot sizes you trade depending on your trade set up? Or perhaps even doubling down after a previous losing trade? I know I use to! For a number of reasons! The most common being "making up for previous losses". Now I don't completely disagree with different position sizes depending on the trade set up. It definitely has its place in higher levels of trading. When as a seasoned trader, the "revenge trade" temptation is mostly gone. However as a beginner trader, changing position sizes depending on the trade set up is a bad idea for 2 reasons: #1 It will likely destroy your account unnecessarily. By unnecessarily, I mean you don't have to lose money to learn how to trade. Although you may have to endure losses and persist through adversity in trading, the monetary losses can be small. #2 It deters the beginner trader from their primary focus. No, the primary focus is "not" to make money as a beginner trader. That comes later. The primary focus for the beginner trader is to hone and develop their strategy until the strategy becomes efficient enough to at least reach "relative efficiency". This means month over month, your profit and loss results are at break even. So when your doubling down on a trade, ask yourself, are you doing it to make money? Or are you doing it to develop your strategy? It's highly likely that you're doing it to make money. Again, you're changing positions sizes for the wrong reasons. So if you're a beginner trader, keep the lot sizes of all your trades the same. Focus and persist on honing and developing your strategy. There's a time and place for everything. When it comes to trading, focusing on making money is only relevant to the trader with an established strategy that's proven to consistently make money in the markets. Hope this helps! Have a great day! Ken
Education
by TradingForexPriceAction
1
Market's MoneyHi! Most commonly used and popularized position sizing method is percent equity model i.e. trader should never risk more than certain percent of trading capital on a single trade. Quite often this number is 2%. This can be anything - within trading there is no right or wrong answers. It all depends from different factors: *Goals *Risk tolerance *Account size *Trading experience *Trading style and strategy One great position sizing technique is 'Market's Money'. Actually it is a way how trader can think (mindset) about his trading capital. Concept is simple: there is my money and there is market's money. My money is my starting capital and all earned profits are market's money. Market's money will become mine only if I convert it into my money. Until it has not been converted into my money, then I can risk more with it because it's not my money, it's market's money. As I mentioned before, it is mindset. Some traders are able to think about trading capital that way, others are not. And that's fine, trader's are different. For me this is a great position sizing technique. Trader can risk less with his "own" capital and more with "market's" capital. Generally speaking we can group position sizing strategies into 2 groups: aggressive and defensive. Market's money goes into aggressive group. It can be used when trader's one goal is to make high returns. I don't want to say exceptional because actually trader can also be conservative using market's money method. There are numerous ways (thousands I guess) how to use market's money. Eventually it all comes down to how trader determines when market's money is converted into his. Here are few examples: *Time (days, weeks, months, years) *Cash earned *Percentage gain *Trades (1, 2, 5, 10, 30 etc.) *Tax purposes *Mathematical formula *Girlfriend's birthday 😀 Usually examples with biggest compounding effect come from: 1) Systems that have very high winning percentage 2) Infrequent conversions from market's money to trader's money Here are few examples how to use market's money: Let's say that trader has starting capital X $. Risk per trade is 2% of that equity. After turning profitable he/she is willing to increase risk. In addition to initial risk (2%), trader is willing to add 5% from earned profit into every new trade. Trading period is 3 months. After that trader converts profits (market's money) into his. Then everything starts over. Chart 2 This example is suitable for day traders. Those traders know very well their system and that system wins on average 3 trades in a row until losing trade occurs. If this system is generating thousands of signals per year then market's money compounding effect would be exceptional. In case of losing streak trader must be willing to live through large drawdowns. When trader uses different system (let's say some trend-following method with low winning percentage) then this position sizing method would not work so well. Key is to know characteristics of your trading system/style and then figure out what kind of position sizing would be best fit. In real life it is very hard to find these kind of systems that have high certainty about when losing trade happens. Mostly trade distribution is more random. Therefore most traders should not use this example with real money. I just wanted to show some different variations about how it is possible to use market's money. Conclusion: If trader's trading system or style (here I mean also discretionary traders) is profitable, then using some creative position sizing methods allow to achieve better results without changing the system. Some traders are constantly trying to improve their systems and make them perfect. Instead that, maybe it would be better to spend some time in position sizing area. Simple trading system/style + well thought position sizing method = Good System! Lastly, it all depends what you find logical and what suits you. Trading with percent equity model is totally fine. Adding market's money to that model can give higher compounding ability to profitable traders. Thank you and have a nice day. Cheers
NASDAQ:AAPLEducation
by Laurentsius
4
How Many Shares Should You Buy? Position Sizing GuideIn this video I go over 3 different position sizing methods you can use to work out how many shares to buy. Risk management is often overlooked but it's very important to keep a consistent level of risk across all of your trades so that one trade can't blow your account up and you can remove the emotion from your trading when deciding how many shares to buy so you don't get caught up in the moment and put on a trade too big for your account. Here are 3 examples of different position sizing methods; POSITION SIZING #1: - Equal Weighted Position Sizing With this method we want all positions we open to have the same value, for example on a $10,000 account if we choose 10% position sizing, that would be $1,000 target per position. To work this out simply divide $1,000 / current stock price = shares to buy. For example on $AMC with a current stock price of $33.94 that would be 29 shares (1000 / 33.94). POSITION SIZING #2: - Stop Based Position Sizing With this method we want all positions to risk the same $ amount if the trade hits our stop loss, for example on a $10,000 account a good level of risk per trade is 2%, so that would be $200. To work this out simply divide the target $ risk / size of your stop = shares to buy. For example on $AMC with a stop loss of $5.04 that would be 39 shares (200 / 5.04). POSITION SIZING #3: - ATR Based Position Sizing With this method we want all positions to risk the Average True Range (ATR) * 2, for example on a $10,000 account with a target risk per trade of 2%, that would be $200. To work this out simply divide the target $ risk / ATR * 2 = shares to buy. For example on $AMC with a ATR of 2.92 that would be 34 shares (200 / 2.92 * 2). At the end of the day it's important to find a method that suits you and your trading strategy that you can stick to consistently.
NYSE:AMCEducation
by Click-Capital
Kelly Criterion: Why YOLO Trading FailsThe Kelly Criterion is a formula that calculates the optimal bet size based on known probabilities that maximizes gains while minimizing ruin... or not getting “rekt” . When we read social media and see infographics of "if you had just invested all your money into THIS you'd have THAT MUCH" it is tempting to dream about how rich we could be just betting BIG . Unfortunately in the real world statistics tell us that this is rarely the truth. However, statistics can tell us what we should do...
BITFINEX:BTCUSDEducation
by norok
9
Position Sizing and Risk Management (for newer traders)Stop gambling! I see this all of the time, too many new traders using max leverage on every single trade. Do you want to see steady growth in your account? Then stop here and let this really sink in, use the same amount of risk on every trade. For example, if your risk is 2% of your account size per trade then make sure no matter where your entry is your stop loss and position sizing is always correct so you don't lose more than 2%.
Education
by Nick1upTrading
Improved Version : How Do "Whales" Trade ? CAUTION : EXPERIMENTAL Hello friends. Whale trading system has been developed and placed on a more reasonable ground. So this publication is an improved version of the educational idea : How do "Whales" Trade? Before Starting In related ideas, you can see the first version and the script I used to create this idea. And there is an intermediate version that shows the logic after separating the bull - bear zones. RULES First of all, there is absolutely no short position to reduce the risk of this system. Negative regions are sales regions. (Not short position) Position sizes are shown in the presentation.We split our capital 100 . (Or you can accept your entire position size 100.) We certainly don't try with all our capital. It can be tested with reasonable capital allocated for instruments. At each change of region, we dispose or purchase all of our position size. And the values in the presentation are our graded position amounts . Now that we've benefited from regional changes, I found 10 levels reasonable. Let's write our position sizes here too : STAKES Pos Size 1 : % 0.4329 Pos Size 2 : % 0.8658 Pos Size 3 : % 1.2987 Pos Size 4 : % 2.1645 Pos Size 5 : % 3.4632 Pos Size 6 : % 5.6277 Pos Size 7 : % 9.1 Pos Size 8 : % 14.719 Pos Size 9 : % 23.81 Pos Size 10 :% 38.52 Note : Position size ratios are formed by coefficients based on gold ratio to provide a logical example. Let us now examine the region from January 22, 2018 to August 26, 2019. I'm doing trade and distributional trades for 1 bar after eye decision and signals to be fair. TRADES AND TRICKS After the sell order arrives on January 22, we wait until distributional buying points arrive. First distributional Buy Signal was on 7 May 2018 (close ) , so it means : Our first Distributional Buy was between 7 - 14 May 2018. Let's start : Distributional Buys : 1.Buy : 8572.5 Position Size : %0.4329 2.Buy : 7847 Position Size : %0.8658 3.Buy : 7456.5 Position Size : %1.2987 4.Buy : 6563.5 Position Size : %2.1645 5.Buy : 6786.5 ==> Rejected , because price is higher than last Buy. 5.Buy : 6507.5 Position Size : % 3.4632 6.Buy : 6396 Position Size : % 5.6277 7.Buy : 5837.5 Position Size : %9.1 8.Buy : 3940 Position Size : %14.719 9.Buy : NET Long Signal : 3493.5 Position Size : The Rest ==> (100 - All) = %62.328 Distributional Sells 1.Sell : 10919 Position Size : %0.4329 (May be higher than the amount of earnings. For example : % 25 Here we are improvising according to obligatory market conditions. I wrote the first rate in order to follow the example rule, but I would sell between 25% and 40% in live trade. Because the profit is too high.) 2.Sell : 10146 Position Size : %0.8658 ( Normally I shouldn't have sold it because it was lower than the first sale. But the profit is still very high, but it is decreasing, so I sell. A much higher quantity can be sold here, as is the same on the top. I'm writing the next rate to keep the rule.) 3. Sell : 11376 Position Size : % 60 ( Now profitability is at its peak , I ignore the stake rules and going to improvise. Instead, the first 3 - distributional sales: 10% - 20% - 40% with values such as making it much more reasonable.) 4.Sell : NET Sell Signal : 9970.5 Position Size : The Rest ==> (100 - All) = %38.8 Note : I could have gone a lot more profitable than my earnings, but to avoid stretching the template, I applied the first 2 ratios. A professional could have been more profitable here: Example: 40 - 60 and close. So I'm going to calculate these rates. CALCULATIONS ( For 100 unit = Full Position Size ) Average Cost : (8572.5 * 0.4329 + 7847 * 0.8658 + 7456.5 * 1.2987 + 6563.5 * 2.1645 + 6507.5 * 3.4632 + 6396 * 5.6277 + 5837.5 * 9.1 + 3940 * 14.719 + 3493.5 * 62.238) / 100 = (3711.04 + 6793.93 + 9683.76 + 14206.7 + 22536.8 + 35994.77 + 53121.25 + 57992.9 + 217428.5 ) / 100 Average Cost = 4215 Average Sell : (10919 * 0.4329 + 10146 * 0.8658 + 11376 * 60 + 9970.5 * 38.8 ) / 100 = (4726.84 + 8784.41 + 682560 + 386855.4) / 100 Average Sell Price = 10829.27 SUMMARY Percentage of net earnings per unit (Full Position Size): ((10829.27 - 4215 ) / 4215) * 100 = %156.92 In doing so, commercials provided liquidity to the markets and did not have the problem of not finding buyers. Stoploss here means emptying the whole position, for me 4 bars means stoploss in all directions. More importantly, increasing rates will not harm us in non-trend areas. Because we start with low rates. Although comments and improvisation are very important, I tried to explain the system outlines by linking them to certain rules. Now we have gone more systematically than the first version !
BITMEX:BTCUSD.PEducation
by Noldo
4
EURUSD LONG - TradingView to MT4 BotSide: Long Risk: 10% SL: 60 pips Noice start this week! SEND SIGNALS FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com POSSIBLE COMMANDS Open Orders buy_SYMBOL_SLinPoints_Risk% sell_SYMBOL_SLinPoints_Risk% buy_SYMBOL_SLinPrice_Risk% (can be used for dynamic values) sell_SYMBOL_SLinPrice_Risk% (can be used for dynamic values) buy_EURUSDi_150_0.05 = opens a buy order on EURUSD with an SL 150 points away with 5% risk if SL triggers sell_EURUSDi_1.10200_0.03 = opens a sell order on EURUSD with an SL at 1.10200 with 3% risk if SL triggers Close Orders close_SYMBOL_%toClose_none close_SYMBOL_%toClose_break close_SYMBOL_%toClose_(price) (can be used for dynamic values) close_EURUSD_50_none = closes 50% of an open order and SL stays the same close_EURUSD_0_break = closes 0% of an open order and SL moves to breakeven if trade is in profit close_EURUSD_25_1.10200 = closes 25% of an open order and SL moves to price that is stated Update Orders update_SYMBOL_SL1_SL2 (can be used for dynamic values) The logic of this command differs slightly and serves as a trailing stop between two dynamic values if your indicator provides that. For example, if current trade is a BUY, after sending this command, it will move Stop Loss to SL1, if it’s a SELL, it will move Stop Loss to SL2. update_EURUSDcn_1.10300_1.10100 = If we are in a BUY, Stop Loss would be updated to 1.10300. If we were in a SELL, Stop Loss would be updated to 1.10100. If you used dynamic values in trading view, the command would essentially look like this: update_EURUSDcn_{{plot_3}}_{{plot_4}} SEND ALERTS FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com WHY RISK MANAGEMENT? Trading can be very lucrative, we all know that, hence; why we became traders in the first place. Whether you found an awesome indicator script on TradingView, an Expert Advisor on MT4, or whatever other strategy that got you excited about trading in the first place; you will lose no matter how perfect a strategy works. I started trading with a strategy that had over 60% win rate and still lost half of my account. You may think I’m an idiot. I just didn’t understand it’s more important to know how much you can lose rather than how much you can make. So from now on, forget about gains. If your strategy’s win rate is above 50%, focusing on how much you can lose will always be more important. The gains will come on their own after that. Risk management is simple and only involves basic math. So let’s start with that: To understand the calculator in it’s entirety, you must know how to calculate profit from a winning position. We’ll use a FOREX example. Let’s say bought 1.00 Lot of EURUSD at 1.00100, a couple hours or minutes later, you closed it at 1.00200. First you subtract Close Price from Entry Price to get the amount of points you gained: 1.00200 - 1.00100 = 0.00100 100 points gain or 10 pips To calculate dollar profit you multiply by Lot Size and multiply again by 100,000. 0.00100 * 1.00 * 100,000 = $100 Gain * Lot Size * 100,000 = $ Great, so you made $100! If your balance was $1,000, you just made 10% return, amazing! But.. what if the trade had gone wrong? How do you even calculate how much you might lose? Well first, you have to choose a Stop Loss, this varies depending on your strategy. One of my 30m strategies has a Stop Loss between 150-200 points, while a 4hr strategy might have a Stop Loss between 600-650 points. Let’s say you’ve made up your mind and you’re going to choose a Stop Loss at 150 points, which means if price is at 1.00150, your stop loss would end up at 1.00000 on a Buy Trade. The key thing first is deciding what % of your balance you’re willing to risk. If I have $1000, you might be okay with losing 5%, which is $50. Now you use the formula above: Gain * Lot Size * 100,000 = $ In this case, we would substitute Gain with Stop Loss value instead. Stop Loss * Lot Size * 100,000 = $ 150 * Lot Size * 100,000 = $50 As you can see, we have to solve for Lot Size because we don’t know exactly how much to trade yet if our trade hits our Stop Loss, we’ll only lose $50. I won’t go into the algebra, so here is the final formula: Lot Size = 1 / (SL in Points / (Capital x Risk%)) Lot Size = 1 / (150 / ($1000 * 5%)) = 0.33 Trading 0.33 lot size with a hard Stop Loss of 150, we’ll only lose $50 or 5% of our balance. That’s basic risk management, and it’ll save you headaches from losing money on your trades. Don’t worry about doing the math yourself though, use our bot that auto-calculates your position based on your risk. Happy trading! SEND TRADES FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com
Education
by lightfalltrades
GBPUSD SHORT - TradingView to MT4 BotAlmost got stopped out on this one lol Side: Short Risk: 10% SL: 70 pips SEND SIGNALS FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com POSSIBLE COMMANDS Open Orders buy_SYMBOL_SLinPoints_Risk% sell_SYMBOL_SLinPoints_Risk% buy_SYMBOL_SLinPrice_Risk% (can be used for dynamic values) sell_SYMBOL_SLinPrice_Risk% (can be used for dynamic values) buy_EURUSDi_150_0.05 = opens a buy order on EURUSD with an SL 150 points away with 5% risk if SL triggers sell_EURUSDi_1.10200_0.03 = opens a sell order on EURUSD with an SL at 1.10200 with 3% risk if SL triggers Close Orders close_SYMBOL_%toClose_none close_SYMBOL_%toClose_break close_SYMBOL_%toClose_(price) (can be used for dynamic values) close_EURUSD_50_none = closes 50% of an open order and SL stays the same close_EURUSD_0_break = closes 0% of an open order and SL moves to breakeven if trade is in profit close_EURUSD_25_1.10200 = closes 25% of an open order and SL moves to price that is stated Update Orders update_SYMBOL_SL1_SL2 (can be used for dynamic values) The logic of this command differs slightly and serves as a trailing stop between two dynamic values if your indicator provides that. For example, if current trade is a BUY, after sending this command, it will move Stop Loss to SL1, if it’s a SELL, it will move Stop Loss to SL2. update_EURUSDcn_1.10300_1.10100 = If we are in a BUY, Stop Loss would be updated to 1.10300. If we were in a SELL, Stop Loss would be updated to 1.10100. If you used dynamic values in trading view, the command would essentially look like this: update_EURUSDcn_{{plot_3}}_{{plot_4}} SEND ALERTS FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com WHY RISK MANAGEMENT? Trading can be very lucrative, we all know that, hence; why we became traders in the first place. Whether you found an awesome indicator script on TradingView, an Expert Advisor on MT4, or whatever other strategy that got you excited about trading in the first place; you will lose no matter how perfect a strategy works. I started trading with a strategy that had over 60% win rate and still lost half of my account. You may think I’m an idiot. I just didn’t understand it’s more important to know how much you can lose rather than how much you can make. So from now on, forget about gains. If your strategy’s win rate is above 50%, focusing on how much you can lose will always be more important. The gains will come on their own after that. Risk management is simple and only involves basic math. So let’s start with that: To understand the calculator in it’s entirety, you must know how to calculate profit from a winning position. We’ll use a FOREX example. Let’s say bought 1.00 Lot of EURUSD at 1.00100, a couple hours or minutes later, you closed it at 1.00200. First you subtract Close Price from Entry Price to get the amount of points you gained: 1.00200 - 1.00100 = 0.00100 100 points gain or 10 pips To calculate dollar profit you multiply by Lot Size and multiply again by 100,000. 0.00100 * 1.00 * 100,000 = $100 Gain * Lot Size * 100,000 = $ Great, so you made $100! If your balance was $1,000, you just made 10% return, amazing! But.. what if the trade had gone wrong? How do you even calculate how much you might lose? Well first, you have to choose a Stop Loss, this varies depending on your strategy. One of my 30m strategies has a Stop Loss between 150-200 points, while a 4hr strategy might have a Stop Loss between 600-650 points. Let’s say you’ve made up your mind and you’re going to choose a Stop Loss at 150 points, which means if price is at 1.00150, your stop loss would end up at 1.00000 on a Buy Trade. The key thing first is deciding what % of your balance you’re willing to risk. If I have $1000, you might be okay with losing 5%, which is $50. Now you use the formula above: Gain * Lot Size * 100,000 = $ In this case, we would substitute Gain with Stop Loss value instead. Stop Loss * Lot Size * 100,000 = $ 150 * Lot Size * 100,000 = $50 As you can see, we have to solve for Lot Size because we don’t know exactly how much to trade yet if our trade hits our Stop Loss, we’ll only lose $50. I won’t go into the algebra, so here is the final formula: Lot Size = 1 / (SL in Points / (Capital x Risk%)) Lot Size = 1 / (150 / ($1000 * 5%)) = 0.33 Trading 0.33 lot size with a hard Stop Loss of 150, we’ll only lose $50 or 5% of our balance. That’s basic risk management, and it’ll save you headaches from losing money on your trades. Don’t worry about doing the math yourself though, use our bot that auto-calculates your position based on your risk. Happy trading! SEND TRADES FROM TRADINGVIEW TO MT4 www.tradingviewtomt4.com
Education
by lightfalltrades
AEP, American Electric Power Co. Inc. - Rectangle PatternNYSE:AEP People like to use indicators or oscillators many times to predict the next trend. Actually they can help you, but they will always be late. And above all, what do you do if they are in contrast with each other? Most importantly, do you have a backtest that proves in the long run that their use is profitable and valid on multiple markets and assets? We go ahead on our technical analysis, aware of what makes us through backtest statistics and confirmed in real operation for years now aware of the deviation that may have on the annual average. In this case we are waiting for a long breakout of this rectangle if it happens, knowing what is the Risk/Reward, the %Profitability, the size of the position aware of the entry and exit point and risk management. Stay Tuned! finance.yahoo.com
AEducation
by SwissTradingSchool
Money Management 101SELF DEVELOPMENT/METHODOLOGY/PSYCHOLOGY Money Management 101 Are you receiving a win-rate of more then 60% and still loosing money?? Money Management may be an area that you need to focus on. It is an essential element in becoming a professional trader. Listed below are 4 Simple Steps To Evaluate Your Financial Health; 1. Position Sizing A portfolio of $... and I decide to only risk 2% on a trading strategy 2. Capital - How much? A portfolio of $.... 3. Loss - How much? I must be right more then 50% of the time, but win more money on winning trades versus losing trades. I will use stops and limits to enforce a risk/reward ratio of 1:2 or higher 4. Profits - What? A profit/loss ratio refers to the size of the average profit compares to the size of the average loss per trade. For example, if your expected profit is $1500 and your expected loss is $500, the P/L ratio is 3:1 Please let me know if you have any questions :) Happy Trading "The simpler it is, the better i like it" Peter Lynch
TVC:GOLDEducation
by SMPTrader