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Position size

Complete Cryptocurrency Trading Course

You got the entry confirmation and you can enter the trade but there is still one important thing to do. You have to calculate position size you are going to take.

Why is that important?

The position size and the distance to the stop loss are the two factors that define how much you are going to risk per trade. The majority defines position size and then tries to fits stop loss order to be tight so they won’t risk too much.

That’s a totally wrong way. The first thing you have to do is to define how much you want to risk per trade. We advise you to use the same risk on all trades and give them all equal chances. The risk per trade has to be between 1% and 3%. The risk above 5% is not trading but gambling because exposing yourself to the live market with big risk can affect you seriously.

Once you defined your risk per trade, it has to be your standard. If that’s 2% per trade, then it’s a 2% risk per every trade you take. Don’t make the decision based on your emotions. If you are super confident in your analysis, give it a try and increase that risk to 3% but don’t increase it to 5-10%. The increase happens only when you are super confident in the price direction and your analysis.

The next thing to do is to define stop loss placement and distance from your entry point to stop loss. Calculate the distance in percentages. If you do not know how to do it, here is the simple formula:

((Entry point – Stop loss) / Entry point )* 100

If you get a negative number, just ignore the minus. The number you get is the distance in percentage from your entry point to the stop loss.

Now when you have the stop loss distance, we can easily calculate the position size for your trade. The formula is very easy and straightforward.

(Risk per trade/Distance to stop loss)*account balance = position size

Let’s use an example to make this clear.

Here is the John who has $1000 in his account balance. He follows our advice and risks 2% per trade. He decided to buy X coin at the price of 100. His stop loss is at 95.

The first thing to do is to calculate the distance to stop loss.

Do you remember the formula?

((Entry point – Stop loss) / Entry point )* 100

((100 – 95) / 100 )* 100 = (5/100)*100 = 5%

Now we have to calculate position size.

This was the formula

(2%/5%)$1000 = 0.4$1000 = $400.

Following the rules is the easiest way to bring yourself to a successful path.
Just exclude your ego and follow simple rules and math formulas. It is your own money so don’t put it all in one trade thinking that some trade will make you a millionaire. Betting everything on one trade can only make you broke. The path to becoming a millionaire is through consistent growth and compound and if you follow that path, 1% account increase will be huge money for you in a couple of years.