Thursday, May 14, 2009

Why position size is so important

This is the number one element to succeed in the market. Traders who lose their capital, have no control over their position size, they don’t know how big their lot size should be, how much they are risking in a particular trade.
Some key points to follow:
Always keep your position size the same in every trade. Traders who change their position size randomly are very often likely to fail in their business.
As your capital increases, you can increase your position size accordingly.
Never risk more than 5% of your capital in a single trade
If you lose two trades in a row third trade must be ½ the size of initial size.
After three losing trades in a row, do not trade anymore, what ever happens in the market.
As a swing trader you should not lose more then 8% in a single trade.
If you have 10 consecutive losing trades, you should take some time off from trading and review your system.
Remember; traders who make money are only good in one thing; that is money management.
What ever system you use for entry or exit should only differ by 1-2% of your performance.
Risk management will make you money.
It is very important that you understand trading is a game of probability, no one is 100% sure about their prediction, so before you enter a trade you must know how much you are willing to lose if the trade does not work out your away.
When you enter a trade, set a stop loss order.
You must know the reason behind your entry, stop and exit. If you don’t know the reason, don’t enter the trade.

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