PrimeTrading Education Article - Calculating POSITION SIZING (PS) as a pro swing & position trader 🧮
The size of your positions could have a tremendous impact on your trading performance if it's not sized properly
First, PS will highly depends on your risk profile. What size I might feel comfortable with, can prevents you to sleep. It's important to test different sizes when you start and define your risk appetite.
If you aim at performance, for me it's all about finding that fine line between having a good size that don't prevents me to sleep… too much 😅
My initial full position size is at 20% of my capital.
Once you defined yours, there's multiple factors that will make you adjust this size:
Setup R/R
Market environment
Personal performance (RRR)
Personal life
1. Setup R/R
If my entry point is too far of my potential SL which I normally put at the breakout candle low, then I will want to scale down this initial PS.
The risk at which this tipping point will occur for me is 0.5/0.75% of my capital. If the risk on that trade is higher than that, I will reduce below 20% PS.
2. Market environment
You also want to adjust your size depending of general market health. When market is in a correction and you still want to trade rallies, then you want to adjust your risk accordingly as setups will tend to fail more often.
Right now for example, I reduced my position by 1/2 on this rally and if I'm trying any long on the way down, it will be down to 1/4 of position.
You just have to make rules around kma's to guige you here
3. Personal performance (RRR)
Even if the market is in good health, it's possible that you just don't trade well, in that case, why continue pushing it aggressively and hurt you in the process. In that case, I want to scale down my PS until I'm back on track.
To assess that, I calculate my RRR:
RRR = (Avrg Win % * Win rate) / (Avrg loss % * Loss rate)
According of this RRR calculation, here’s how I personally adjust my PS
RRR > 2 = Full 20% initial position
2 > RRR >1 = ½ initial position
RRR < 1 = ¼ initial position
4. Personal life
Trading at a high level and out performing the market needs to make a lot of high risk daily decisions. If your head is elsewhere for whatever reason, it's probably not a good idea to trade full size as your decision making might be compromise.
Scale down PS aggressively in this situation, probably down to 1/4 or even 1/8 PS.
Like everything in trading, you have to be flexible, have rules and find your own comfort zone. Remember, defense first
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Alex ✌️