Position Size?

[Ismail]

We do not want to place a stop where it could easily be triggered by normal movements in the market.

Hi

I know i should put the stoploss around resistance or support my question is more about can my position be higher than the amount i am risking1-3% of account sounds okay i think i will keep it around 1-2% risk still i want to know can my position size be higher than the amount i am risking is there a amount for position size how can i calculate it or do you mean with risk maximum 1-3% my position size? anyhow thanks for the info

 

[Xela]

how can i calculate it

An example might help?

Let's say you have a $500 account and have decided to risk 1% per trade (I know you said "1%-2%" but I'm deliberately taking the lower figure and I advise you do the same at least for your first few months until you're able to judge by results and work out your expectancy).

Let's say you want to enter a trade on EUR/USD. So, your risk-value for the trade is going to be $5, because that's 1% of your account.

The actual pip value of EUR/USD is $10 per pip per full lot (and that never changes - regardless of your own account-size, leverage and position-size).

Now you look at the support/resistance and determine where your stop-loss (at least your "initial stop-loss") is going - and you're quite right that above resistance for a short trade and below support for a long trade are suitable places.

Let's say, for our example, that that's 20 pips away from your entry.

That means you want 20 pips to represent $5 risk, which works out at $0.25 per pip (that's just 5 divided by 20).

Now you have to determine your position-size by comparing the fixed pip value per lot ($10) with the pip value you want ($0.25).

As you can see, one is 40 times the size of the other, so that means you want 1/40th of a full lot.

So your appropriate position-size is 2.5 micro-lots (because a full lot is 10 mini-lots, which is 100 micro-lots).

If you were trading with only a 10-pip stop-loss (probably not recommended), your position-size would be 5 micro-lots instead; if you were trading with a 40-pip stop loss, it would be 1.25 micro-lots instead. Work these two examples out for yourself and see if I've got them right.

None of that calculation depends on your leverage.

Does that all make sense?

You need to be very familiar with how to work these out before you start trading.

The normal way to gain that familiarity with it is by using a demo account. But if you're going to start trading with a real-money account instead (and I do see that for some people that's preferable), then at least make sure you understand really clearly how to work it out first!).

 

[Ismail]

That means you want 20 pips to represent $5 risk, which works out at $0.25 per pip

This was the way i was trading on a demo account with position size of 25$(5% of account) and a risk value of 5$(1% of account) it moved about 22 cent per pip and worked quite well.
Will this work out in the long the run?
I found it quite hard to understand youre example since my broker determine position sizes in cash not in lots im not familiar with lots.

I appreciate your help

 

[murray t turtle]

I am honest with myself dont draw conclussions MrBS youre post didnt add anything to this thread.

%%
Mr Scalper made a prediction; i dont make predicitions + dont scalp.As a position-swing trader -investor;I hope your trades do well i've got more than $500, in paper books.Just because no one has ever been known to turn trading $500 in to a profitable business;Col David [KFC] Sanders turned $87 loan in to many millions but he sold chicken+ Shell Oil gave him free rent..........I Paper traded a check for a subscription to IBD newsPaper[Investors Business Daily]; i see what they mean , now, after years,new traders want too much too soon.Hope this helps; IBD says cut losses @8%, try that, if 1% stop loss does not work on $500??

 

[MrScalper]

%%
Mr Scalper made a prediction; i dont make predicitions + dont scalp.As a position-swing trader -investor;I hope your trades do well i've got more than $500, in paper books.Just because no one has ever been known to turn trading $500 in to a profitable business;Col David [KFC] Sanders turned $87 loan in to many millions but he sold chicken+ Shell Oil gave him free rent..........I Paper traded a check for a subscription to IBD newsPaper[Investors Business Daily]; i see what they mean , now, after years,new traders want too much too soon.Hope this helps; IBD says cut losses @8%, try that, if 1% stop loss does not work on $500??

You want to bet against my prediction

 

[ironchef]

An example might help?

Let's say you have a $500 account and have decided to risk 1% per trade (I know you said "1%-2%" but I'm deliberately taking the lower figure and I advise you do the same at least for your first few months until you're able to judge by results and work out your expectancy).

Let's say you want to enter a trade on EUR/USD. So, your risk-value for the trade is going to be $5, because that's 1% of your account.

The actual pip value of EUR/USD is $10 per pip per full lot (and that never changes - regardless of your own account-size, leverage and position-size).

Now you look at the support/resistance and determine where your stop-loss (at least your "initial stop-loss") is going - and you're quite right that above resistance for a short trade and below support for a long trade are suitable places.

Let's say, for our example, that that's 20 pips away from your entry.

That means you want 20 pips to represent $5 risk, which works out at $0.25 per pip (that's just 5 divided by 20).

Now you have to determine your position-size by comparing the fixed pip value per lot ($10) with the pip value you want ($0.25).

As you can see, one is 40 times the size of the other, so that means you want 1/40th of a full lot.

So your appropriate position-size is 2.5 micro-lots (because a full lot is 10 mini-lots, which is 100 micro-lots).

If you were trading with only a 10-pip stop-loss (probably not recommended), your position-size would be 5 micro-lots instead; if you were trading with a 40-pip stop loss, it would be 1.25 micro-lots instead. Work these two examples out for yourself and see if I've got them right.

None of that calculation depends on your leverage.

Does that all make sense?

You need to be very familiar with how to work these out before you start trading.

The normal way to gain that familiarity with it is by using a demo account. But if you're going to start trading with a real-money account instead (and I do see that for some people that's preferable), then at least make sure you understand really clearly how to work it out first!).

Question: If your trade size is $5 per trade, how much commissions do you pay for each trade?

I never understood how a 1% rule worked in a small account.

Thanks.

 

[Xela]

Question: If your trade size is $5 per trade, how much commissions do you pay for each trade?

You're paying "spread", not "commissions", on small position-sizes, using a forex-broker.

It isn't any more expensive than larger positions, pro-rata.

If you're buying EUR/USD, you're paying 1.0773 for it; if you're selling it, you're getting 1.0772 for it, just like any other trader who is trading for $5 or $50 or $500 or $5,000.

I never understood how a 1% rule worked in a small account.

Exactly the same as on a big account: your dealing-costs will be a tiny fraction of a cent.

It's not like buying stocks, where buying "one share" wouldn't be viable because of the minimum commission-size.

 

[murray t turtle]

[ Delayed Turtle QUOTE="MrScalper, post: 4428622, member: 159522"]You..... against my prediction ??[/QUOTE]
%%
My best quotes, Mr Scalper are delayed,LOL, like 50 day moving average, end of day quotes.LOL My answer to question ,was cash markets, like IBD teaches{Investors Business Daily}cut loss @ 8%+aim for 24%+profits.Repeat +Risk 8% to get 24% or more percent........

Speaking of cash markets did you see the 1786 penny/copper coin that sold on Ebay, for more than $105,000.55, in 2011?? My2004 coin book priced it @ $45,000.Like Rich ''turtle trainer'' Dennis said ''expect extremes''. My comments here, concern cash markets.Thanks for the question.

 

[ironchef]

You're paying "spread", not "commissions", on small position-sizes, using a forex-broker.

It isn't any more expensive than larger positions, pro-rata.

If you're buying EUR/USD, you're paying 1.0773 for it; if you're selling it, you're getting 1.0772 for it, just like any other trader who is trading for $5 or $50 or $500 or $5,000.





Exactly the same as on a big account: your dealing-costs will be a tiny fraction of a cent.

It's not like buying stocks, where buying "one share" wouldn't be viable because of the minimum commission-size.

Thank you for the explanation. So, if my account is $500 and I want to risk $5, I can just buy $5 worth of EUR/USD and my only cost is the spread, and my broker won't mind me buying just $5?

Best wishes.

 

[Xela]

So, if my account is $500 and I want to risk $5, I can just buy $5 worth of EUR/USD and my only cost is the spread, and my broker won't mind me buying just $5?

Yes - all correct (especially if you use somewhere like Oanda that actively promotes the availability of such position-sizing).