PROPER POSITION SIZING

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proper Position Sizing Cheat Sheet 

Position sizing isn't random. It's calculated based on ACCOUNT RISK (AR) and TRADE RISK (TR). 

A formula controls risk so we know exactly how many stocks, futures contracts, or forex lots to buy on a given trade. There are many ways to calculate position size. Here are a few simple ones: 

Fixed % Risk Method 

Step 1. Choose an AR% you wish to risk on a trade. 2% or less. or less is preferred. 

Step 2. Covert the to AR$, based on your account size. 

ARI% on $10,000 account means you can risk/lose up to SIOO/ trade. 

Step 3. Determine TR$, This may vary by trade; it's the difference between the entry and stop loss (SL) price. The SL is the exit point if the price doesn't move in the expected direction. 

• Entry at $15,SLat $14.25, means TRS is $0.75. 

POSTION SIZE AR$ / TR$ - $100/$0.75 - 133 shares. 

Fixed S Allocation Method 

Step 1. Choose the maximum number of trades you want to allocate your total capital to. If you choose 5, each trade gets a maximum of 20% of the capital. 4 trades, each gets 25%, and so on. 

Step 2. Apply the SL to the trade. AR% should still be under 2%, ideally under of account. 

• 5100K account spread over 5 trades. 520K into each. Assume TR% is 7% (difference between entry and SL). 0.07 x $20K — $1400, that's 1.4% of the 5100K account. Acceptable. 

If the TR% is 15% the AR% risk exposure is too high. 0.15 x 520K - or 3% of account. 

• Reduce capital allocation (S) until the is below ideally lfTR%is 15%, allocating SIOK to it means overall account risk is now down to 1.5%. Acceptable. 

POSITION SIZE = Capital allocation ($) / purchase price Assume $65 entry and S20K allocation $20K / $65 307 shares using leverage? Use total buying power (TBP) not total capital. 5100K, 2K leverage S200K TBP Forex 0LEuturesSizing 

Utilize the Fixed % Risk Method, Establish your and convert to ABS. Determine TR in pips or ticks/points and know the pip/tick/point value. 

Assume a $15,000 USD account, AR% is 1% (can lose up to $150), buying EURUSD at 1.1510 with SLat 1.1498 (12 pips risk). Pip value is $10/standard lot. 

POSITION SIZING = AR$ / (TRpips x Pip value) 

• $150/ (12pips x $10) — 1.25 standard lots. Itjs standard lots because we used it in the equation. Use micro lots (SI) for the position size in micro lots. This position size requires 10:1 leverage (1.25 lots is €125k, with only $1SK in the account).

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