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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
MRI, SPX divergence is a bull trap, not a bull run.we point out that the current SPX levels is as high as they were in late May, however MRI levels were higher, then. we were also unable to test WMA200 in daily chart, something we're doing right now. this could be a divergence, or SPX could be front running our MRI. in case SPX is a front runner, we'd expect a side way move withing the depicted gray box, just above the WMA200. in case it's a divergence, that would suggest a bull trap instead of a bull run. thus, we'd expect a false WMA200 breakout, topping most likely at the top of the box, reversing afterwards. thank you for your attention. best regards.
SP:SPX
by greenfield_br
Ethereum dominance pitchfanThis pitchfan on the Ethereum dominance outlines zones where it is optimum to have exposure to ETH. It also outlines where it is best to take profits or reduce exposure to ETH. Theoretically the risk/reward ratio for holding ETH is more favourable in the lower bands - the lowest blue band being an optimum risk to reward ratio. If ETH dominance moves into the upper blue band the risk to reward ratio is much less favourable, this has historically been a beneficial time to take profits or reduce exposure to ETH. *this is not not financial advise*
CRYPTOCAP:ETH.D
by 1.008
Position Size Calculation - Example 11. INPUT PE = Capital($) = 1000 RP = Risk (%) = 2 % EP = Entry Price = 1719.78 XP = Exit Price = 1733.75 2. OUTPUT (Goal) PS = Position Size = ? LEV = Leverage = ? IM = Initial Margin = ? 3. CALCULATION RD = Risk ($) = 1000 * (0.02) = 20 SLD = |EP - XP| = |1719.78 - 1733.75| = 13.97 SLP = Stop Loss (%) = (SLD / EP) = (13.97 / 1719.78) = 0.0081 PS = Position Size ($) = RD / SLP = 20 / 0.0081 = 2469.13 CPV = Current Price Value = EP = 1719.78 QNT = Quantity = PS / CPV = 2469.13 / 1719.78 = Roundup(1.435) = 2 4. Assumption and Final Calculation LEV = {3, 5, 10, 20} IM = PS / LEV = 2469.13 / {3, 5, 10, 20} = {823.04, 493.826, 246.913, 123.4565}
BINANCE:ETHUSD.PEducation
by yaser_rahmati
Risks of Defi platforms?You have to transfer your assets to their system to lend or staking to get attractive rewards. Problem: you lose all control of your assets and they can use your assets for illegal purposes or when their system is hacked you will lose all your assets or they can prevent you from pulling your assets out of their system. You should stay away from such forms of defi. Do not hand over all assets to someone else to manage, no matter who that person is or any organization. The recent collapse of some defi platforms can be a very sophisticated form of fraud, stealing customers' assets and blaming the market and no one has to be punished by law.
by aromB
EXIT STRATEGIES: Money ManagementHey traders, Today I wanted to dive into exit strategies. A lot of you will already have a very clear understanding of what an exit strategy is and how you usually go about it. Most of you are probably automatically thinking of stop losses and take profits, which is fair enough. Today however, I wanted to dive into some more advanced techniques. I want to have a look at what you need to be thinking about prior to entering a trade, during the trade, and then finally when it's time to get out. Yes, we use stop losses. Yes, we use take profits. But I know from my experience personally, it's very rare that I actually get my full stop loss hit. I'm usually out of the position prior to those levels. This all falls under money management, which is by far the most important aspect of your trading ability that you need to understand. We are money managers as traders. When we are risk on, we have money live in the markets. It is our job to manage it accordingly. Win or lose, the success comes down to if we are managing position and risk correctly. Now, this blog is a little bit more directed to our day traders or people who are constantly having positions with the whole idea of set stop losses and take profits. For investors, it does differ a little bit and I'll touch on that now. When it comes to buying a stuck or an asset, it is very easy come up with a trade idea. You find the idea, you buy, simple. What makes it really difficult is actually finding the appropriate time to sell. That's what actually makes the good investors. Because equity, yes, it is still extra cash in your pocket, but you don't get that cash actually in your pocket until you have hit that sold button and realized your profits. My biggest outlay to anyone in any type of investing is have an exit plan prior to entry. Have a minimum requirement, have a maximum requirement, and what to do in those scenarios. I've seen it many many times before, especially with the recent cryptocurrency boom that people just get in expecting it to go up with no exit strategy, so they never exit because it's constantly moving up. Then, Unsurprisingly, the market pulls it back in and they lose all of their equity profit. They find themselves trying to close out of their position before it's a big loss. Always have an exit plan. Now lets dive back into more of the day trading market. When it comes down to exits of the market. Most people use stop loss orders or take profit orders. These are orders you can set on your brokerage platform, which essentially, when that asset reaches a certain price, the server will read that and automatically pull your position at your requested price. These are the most common ways to manage risk. It's a very beginner friendly. It's very easy to find an area where to put your stop loss, put your stop loss, put your take profit, walk away and let the trade unfold. However, today, let's get a little bit more advanced. There are a few questions you need to ask yourself prior to entering a position. Regardless of looking at the profit potential (which is the biggest pull). Start associating yourself with the risk you are taking in order to open this position. The first question I want you to ask yourself is, how much are you willing to risk on this trade? Risk is an important factor when investing right to determine your risk level. You need to understand what is not going to affect or hurt you, but still generate enough profits to make it worthwhile in your eyes. Finding that medium balance of what you can handle when you go and drawdowns is going to be highly beneficial to risk the right amount and not go emotionally insane every time you're in a position. Once you understand what dollar value you're willing to risk, then you just position size accordingly and have a stop loss on your chart and there you will know your maximum risk. That is what you are going to lose if all goes against you on this position. Once you have the basic understanding of how much you're risking per position, you want to try and avoid hitting that stop loss at all costs. So while you're managing your position (this is something I like to do personally) if everything is going against you, it's usually a sign that it's going to continue that way. Yes, statistically, there's going to be sometimes it may be reverses. That's the beauty in backtesting your strategy so you have an in-depth understanding on what it is capable of. I look to start scaling out of my position, which means selling off my position size as we move towards the stop loss. As I mentioned above, it's very rare that I actually hit my Max loss stop loss statistically. Looking back at my journal, I've actually scaled more than 75% of my position out prior to hitting a full stop loss if not all of the position. This is giving me an incredible advantage when it comes down to statistics, because while I can still hit a full take profit and a full position in profits. But I am not hitting a full loss, so my risk to reward has actually rapidly increased, even though it's still very similar when I'm entering the trade. The second question I want you to ask yourself is, where do you want to get out? Where is your take profit? Where is your stop loss? But also look within those areas where realistically are key indications on where this price is going to move. Do you have to get through four or five support levels to reach your take profit? Should you start looking at scaling out some of the position in the profits around those levels? The more you have to go through, the harder it is going to be to actually achieve the profit. Have an exit plan. Where are the levels you want out? And finally, and this is probably the biggest one, how long you are planning on being in the trade? If you're trading down on the five minute chart, do you really want to hold this trade for two days? If it takes that long, do you only want to be trading during this market hours? Where do you want to cut this trade? This is really important because most people, especially the set and forget traders, they don't have a time limit on their trades. They allow it to just run over multiple sessions. But The thing is, the longer it runs, the less than analysis becomes true. Have a look at the time frame you're trading. If you're investing, look at the yearly outlook. How long do you really want to be holding this stock before it actually does something? I know we're not options traders. Some of you, maybe, but it is a good idea to have kind of a time scheme that you don't want to be holding any longer than. I personally look to start scaling out of the position, taking risk off the longer the trade takes, especially if I'm trying to trade on volatility. These are three questions to ask yourself and a little bit of tips and tricks when it comes down to scaling an managing risk on a more advanced level. Remember, as traders and investors, we are risk managers. We are money management specialists. Our job is to not lose money. When we stop losing money, profits will come in. Focus on your risk, focus on what you can afford to lose, and then focus on your positions and try and stop yourself from ever hitting that Max stop loss that you give yourself. I wish you all success! -Jordon Mellor
Education
by the5erstrading
8
#gameplan P3N Low-Risk Setup:Risk management is very crucial when you trade. Here is one of my mostly applied strategies for risk management. It's useful for people who trade in a very volatile market or fade. This method aims to limit the loss to zero by taking profit when reaching 1R. It's with less profit than expectation, but lower the risk. 1. Open the position and set how much $ you're going to risk for this gameplan. Then set the partial TP at the 1R and xR levels. (xR is your target.) 2. When price reaches 1R, it TP 1/2 position to keep the small profit. 3. If the trend is against our expectation and have a down move to -1R, at which our stop loss is, we close the position with 1/2 of the original with the same amount of loss as the profit. So this will keep our trade safe. However, if it goes up to 5R, which is out target, we can still keep 1/2 of our position to take the profit. Tips: You can use Fibonacci tools to predict how many xR in your gameplan.
by p3nchan
2
Eurostoxx Ultimate Pivot PointsReading charts is just one part of trading a bear market, another highly significant part is a solid understanding of market psychology, heuristics and biases. Having spent 14 years in a QE fuelled bull market where there were few inexplicable events and certainly no major forced liquidation events, it is easy to understand why so many participants get so excited about two days of asset flows out of commodities and into tech names. Yes, the market can go higher from here, yes it can go lower, but calling a major bottom and repeatedly getting attached to these short squeezes is all part of the psychological conditioning that has been happening to many over the last 14 years. Therefore we would suggest waiting for extremes where there is nobody else left to buy or sell, this is where the odds are stacked firmly in one's favour. Patience. Discipline. And more patience.
TVC:SX5E
by Newcomb_Analytics