Position Size?

I

Ismail

Hi

I am new to this forum and learning to trade now for a few months but still have some questions without answer. I know in trading it is important to not risk more then 1% of account size. I am starting next week with a deposit of 500$ and I will put my stoploss not higher then -5$ about 20 pips away from my buy/sell position with leverage of max 1:100, but my question is : how much should I put into the trade? I was thinking about 5% account so 25$ per trade. This is lowest my broker allows, but I am unsure about this. I dont want to make the same mistakes I made before and can only afford to trade with 500$. Can my position be 25$ or higher or do they mean with dont risk more then 1% that i should trade with 5$ position or should i wait for a bigger deposit? I am confused and hope you guys can clear this up for me.

Thanks for reading.
 
Ismail said:
Hi

I am new to this forum and learning to trade now for a few months but still have some questions without answer. I know in trading it is important to not risk more then 1% of account size. I am starting next week with a deposit of 500$ and I will put my stoploss not higher then -5$ about 20 pips away from my buy/sell position with leverage of max 1:100, but my question is : how much should I put into the trade? I was thinking about 5% account so 25$ per trade. This is lowest my broker allows, but I am unsure about this. I dont want to make the same mistakes I made before and can only afford to trade with 500$. Can my position be 25$ or higher or do they mean with dont risk more then 1% that i should trade with 5$ position or should i wait for a bigger deposit? I am confused and hope you guys can clear this up for me.

Thanks for reading.
More...

I suppose that depends on what markets/instruments you are trying to trade. Risking $5 per trade seems very limiting to potential profits, unless it is penny stocks.
 
Visaria said:
If u wanna get rich, 1 per cent ain't gonna cut it.

Use half Kelly fraction, which you will have estimate, to size your bets.
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With the strategy i explained in the thread it doesnt move 1cent but 22cent per pip.
And i know i wont get rich with a deposit of 500$ that is common sense.
My question was more about position size howmuch to put into a trade.
I will look into the kelly fraction thanks.
 
Last edited:
Ismail said:
And i know i wont get rich with a deposit of 500$ that is common sense.
More...


It is: the purpose of trading with $500 isn't to make money - it's to gain experience and see whether you can trade reasonably consistently without losing money.

Half of what Kelly's formula predicates isn't a bad principle at all. The problem, though, is that calculating it requires knowing your expectancy accurately, and that's asking a lot without considerable experience.

I think your 1% risk is a good principle, at least to start you off. That doesn't depend on your leverage.

If you want to read up on position-sizing in a user-friendly way, look no further than Van Tharp's book Trade Your Way to Financial Freedom (and without letting the title put you off it!): most of the second half of the book is directly or indirectly about "how to work out position-sizing", and you might just find a PDF copy of it online. Good luck.

If you're trading spot forex, Oanda allows infinite granularity of position-sizing: you can easily do $5 trades there, if you want to. Anything from $1 up, in fact.
 
Xela said:
It is: the purpose of trading with $500 isn't to make money - it's to gain experience and see whether you can trade reasonably consistently without losing money.

Half of what Kelly's formula predicates isn't a bad principle at all. The problem, though, is that calculating it requires knowing your expectancy accurately, and that's asking a lot without considerable experience.

I think your 1% risk is a good principle, at least to start you off. That doesn't depend on your leverage.

If you want to read up on position-sizing in a user-friendly way, look no further than Van Tharp's book Trade Your Way to Financial Freedom (and without letting the title put you off it!): most of the second half of the book is directly or indirectly about "how to work out position-sizing", and you might just find a PDF copy of it online. Good luck.

If you're trading spot forex, Oanda allows infinite granularity of position-sizing: you can easily do $5 trades there, if you want to. Anything from $1 up, in fact.
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He is only kidding himself with $500, so let's be honest with the person, and I am predicting at this moment that he will fail dismally, just like the rest, if he continues on his chosen path.

Van Tharp and his R multiples are nothing but a waste of time, and money if you are silly enough to pay for the book.

It is very simple. The rules never change.

You need money to make money.

If you have money, you only risk a small % of your available capital, and depending on what way you decide to trade, 1% can be too much. In other instances, 1% can not be enough!

Nice new avatar, btw:D
 
Xela said:
If you want to read up on position-sizing in a user-friendly way, look no further than Van Tharp's book Trade Your Way to Financial Freedom
More...




I found difficult to understand the Kelly method
And indeed i want to trade with real money becuase its diffrent than a demo account
I was already thinking about to start reading a book on this subject
Thank you for your suggestion i will certainly look it up.
 
Hi
Let us look at how position size should actually be determined. The first thing we need to know before we can actually determine our position size is the stop level for the trade. Stops should not be set at random levels. A stop needs to be placed at a logical level, where it will tell the trader they were wrong about the direction of the trade. We do not want to place a stop where it could easily be triggered by normal movements in the market. (Learn more in 4 Factors That Shape Market Trends.)

Once we have a stop level, we now know the risk. For example, if we know our stop is 50 pips (or assume 50 cents in stock or commodity) from our entry price, we can now start to determine our position size. The next thing we need to look at is the size of our account. If we have a small account, we should risk a maximum of 1-3% of our account on a trade. The percentage of the account we are willing to risk is often misunderstood, so let's look at a scenario.
 
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