Position Sizing

Why position sizing strategies are so critical to your bottom line results!

Few people understand this critical concept, yet it means the difference between consistent top performance and mediocre performance for most people.

Once a trader has established the discipline to keep their stop loss on every trade, without question the most important area of trading is position sizing. Position sizing is the part of your trading system that tells you how many contracts to take per trade. Poor position sizing is the reason behind almost every instance of account blowouts. Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul.

Trade with Peace of mind.

When you place your trade on market pull back (using Fibonacci tool), you have already set the risk that you "wanted"... from the above example, the risk is 10 tics x $12.50 = $125 on 1 lot.

If you can risk 5 lots for this trades, you can exit 4 lots at 1.5x, which is 15 tics and let the balance 1 lot to go for Fibonacci target of 30 tics profit.

4 lots cleared the first target level, this gave you $750 and now you are only left with 1 lot's risk = $125 ( if the trade did not clear second level profit target)

At 8:30pm(by the way, this is "live" reporting, while typing this blog, market is still running, P&L is also running) market did not managed to clear the target, instead, it took the stop loss.

But are your pocket hurt from today's trading result? Not at all.

You have exited your major position on the first level, and left only the minimum to let the profit run.

The balance in your pocket now:

$750 - $125 = $625

On the second example, I will be using CL (Crude oil), market cleared your first level target and retrace back to sell cluster again. Now, you can place a new trade with a new position sizing. Do remember that you still have a small lot size that you want the market to run to second profit level.

In this example, we use 25 lots, risking 16 tics per lot. Same strategy, we will exit 20 lots (the majority) at the first target of 23 tics, that will gave us $4,600. We are left with 5 lots risk at $800.

When the market cleared our first target and came back for us to sell again, you can park at the same level for entry, but bear in mind that you still have 5 lots from your previous entry. Example, if you are now willing to risk another $800 from your first profit, you can go for 5 lots on this second round of entry.

The target exit for this new batch will be the first level exit target level, which is 23 tics.

As at 9:32pm (SG time), it cleared the first target level for our second batch.

Total profit from 2 batches of entries = $4,600 + $1,150 = $5,750. Risk still remain at $800 on 5 lots from first batch of entry.

At time of posting, market is still running, yet to have an outcome for the balance risk. With the trading software, you can place OCO order and just let the machine take over the fate of the balance risk.

It’s a whole new way of thinking for some, but most successful traders think in terms of risk/reward, which, of course, gives them an edge out there in the markets. Learning to trade in this way will keep you in the game longer and enable you to run with your profits and cut your losses short. What could be better than that?

Latest update @ 9:45pm (SG), second target level cleared.

The balance 5 lots are cleared.

Total gain from this position sizing strategies:

25 lots from the first entry

exited 20 lots & gain $4,600 with a balance risk of 5 lots, $800

Additional 5 lots on second entry

exited 5 lots & gain $1,150 with a initial risk of 5 lots, $800

Final target reached, total gain = $8,050

Almost always, my best trader in class who is good with Fibonacci will not disappoint me. After I post my chart, this trader will follow by his posting with P.O.T (real time)! This is how good this trading community is. Real game, real money on the table. You'll learn a lot from this community.

It depend on "U" whether you would like to open up yourself to welcome this community with the same trading goal.