What is position sizing?

Position sizing  is a combination of  risk per trade, stop loss and risk reward ratio. Therefore to determine the size of your position on your trade , you must first decide on how much you are willing to risk. Most traders make a mistake of fitting their stop loss to their desired position size instead of fitting their position size to their desired stop loss.

What is position sizing?

Position sizing is setting the right volume of the amount you want to buy or sell for each currency pair. How much money do you want to place in every trade you take?

Position sizing in forex trading determines how many units of money/ lots you trade in each position you take. It can be a micro-lot, min or standard.

It is the  most important tool in forex risk management and a good skill to accumulating money on your account. However it can be challenging to most forex traders because they only focus on how much they can make out of a trade and have ended up placing their stops losses so tight.

Like we mentioned above, most traders mess up by fitting their stop loss to their desired position size instead of fitting their position size to their desired stop loss.

A proper position size will protect your account since it helps you to determine a desired stop loss that matches the size you want to use.

To trade successfully you need to first know how much you want to put in a trade so that you are able to know both the amount of risk and expected reward. Make it part of your trading habits and your trading plan should not miss to have such an important tool.

So, What do you need to calculate Proper Position Size?

  • Account balance.
  • Your percentage risk per trade
  • Stop loss in pips
  • Value per pip
  • Currency pair you are trading.

Let’s now look at each of the above factors required to calculate a proper position size in detail in our next lesson.

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