Updated: Mar 13, 2019
As the saying goes, “Do not put your eggs in one basket”.
Picking up from the last topic Making Sense of the Basic Forex Jargons, we suggested dear readers to remember at least a few useful words such as Volume. Previously, we have encountered words upon opening an account. They are Balance, Equity, and Margin. However, Leverage was necessarily introduced in order to make sense of them.
Now, let’s add Position Size.
Personally, I think Position Size is the most important set of words in the industry. Yes, I’m putting it on rank 1. You think trading big sums entitles you? Nope, Position Size does not care. Heck, even if you start with just $30 and get this straight, you come out here a champ!
Starting an account doesn’t need to come from your own pocket.
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Cause it’s how you manage your account that matters. Inevitably in the beginning, you may buy (or sell) and then, lose trades. Yet still has the capacity to continue trading and eventually get the style and strategy that works for you. Some articles in this site has already touched on strategies you could experiment with and see if it works for you.
Position Size allows you to do just that.
It encourages you to manage your account and not put everything in one single trade. It lets you to risk only what you can afford to lose.
Now, do not make it an excuse that you only have a small account anyway thus, you should go all-in. If you’re planning to become more financially capable and even dream of freedom through Forex trading, you better develop sensible habits. And going all-in isn’t one.
Trust and respect the process. Put in the necessary work.
Your account may not turn into a million dollar in a day or even a year, but at least you get to do what the banks are actually doing with your savings. Yes, banks also trade currencies. But they take most of the daily profits and give you only a percentage ANNUALLY. Life can be harsh that way so up your smarts! And yes, I’m giving you an idea to invest some of your extras to trading instead.
But in case you’re on a tight budget, you may just start here:
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Not stalling. I have to encourage you again to ready your accounts because we’re now about to discuss the HOW. So, please do register if you don’t have yet.
Alright? Let’s get to it.
Before you get to Buy (or Sell) currencies, here’s what you’ll likely encounter. Notice, you will have to input the type of order you’re going to request. And set target especially the stop-loss.
In the sample photo, beneath the Market Execution type of order is the Volume in 0.01 increments. The lowest volume you may input is 0.02 then, you may add thru clicking +0.01, subtract by clicking -0.01, or type in your preferred volume.
Now, the question is… what value will you input? What is the basis?
It’s based on your account size, in how much you’re comfortable losing in a trade. See now why I don’t encourage going all-in? Ladies and Gents, it is possible to wipe out your account in just one trade.
Most of the older Forex blogs out there recommended 2% of account to risk.
That is, if you have say $500 then, you're recommended to risk $10 per trade. In $5000, you risk $100. If you lost thrice in a row, your $500 will go down to $470 while the $5000 will become $4700 as you lost $30 and $300 respectively.
Despite losses, you’re still alive right?
Probably sustained some $30 or $300 wound. Nonetheless, you have saved most of your account to keep going. So, get up soldier!
The strategy may be a bit different once you reached bigger accounts like a standard-sized $50,000 account. The recommended risk percent are lowered to at least 1%. Because who’s mortal gonna still be okay losing $1000 PER TRADE, yeah? Damn 3 losing streaks would already equal an average family’s cost of living.
After identifying risk percentage, I don’t want to tap into the mathematical formula because we are in luck that this day and age is hi-tech. In case you’re curious and wants to manhandle calculations, Babypips wrote about that here.
But nowadays, there are sites to visit such as the XM Forex Calculators. Also, apps that calculate your position size exist. Just fill-in other required data such as account currency and balance, currency pair you want to trade, and of course your stop-loss.
Voila! You will get a sensible Volume to input upon ordering.
I’ve been talking about losses. Even the calculations seem to mind the Stop-loss more than the Target. You may wonder where has optimism gone? Does it exist in Forex? The answer is a resounding YES!
Please know that after putting in the work, you are bound to get rewards.
Don’t sulk nor give up when you risk $10 or $100 on every trade. Because, in Forex, it’s actually encouraged even highly suggested to get only into a trade that has bigger reward compared to your risk. Like a risk reward ratio of 1:3. This would mean that risking $100 may win you up to $300 if the trade is right.
Win big. Lose small.
So, when is a trade the right one? How will you know and how to trade it?
Well, isn’t this an interesting topic?
Please review articles and see connections.
And again, the Technical Analysis: How to Slice Charts
PLUS, another Price Action strategy on the next read. ‘Til then.
Happy trading everyone!
@marilesaca || Trading Kitten :3
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