47. Why Position Sizing is So Important in Trading

Practice these concepts with a free practice charting and trading account here: http://bit.ly/IT-forex-demo3 For the full lesson with images, text, links, and discussion, go here: http://www.informedtrades.com/7054-fixed-position-sizing-avoid-common-trading-mistake.html For our full beginner course in technical analysis and trading, go here: http://www.informedtrades.com/index.php?page=freetradingcourses And of course, don't forget to jump start your learning as a trader by registering as a member of our learning community: http://www.informedtrades.com A lesson on why position sizing is one of the most important aspects to consider when trading the stock, futures and forex markets. So far in the lessons leading up to this one we have covered some of the different methods traders use to pick their entry points, as well as some of the different methods which traders use to set their exit points. In this lesson we are going to look at the factor which ties all of the above together and allows a trader the greatest control over their returns: Position Sizing. While position sizing is one of the Key components of successful trading, like many of the other things we have covered, it is often overlooked as an unimportant aspect of trading. What successful traders know however is that once the psychology of trading is mastered and a trader has developed a sound strategy for picking their entry and exit points, it is the method they use to determine the size of the positions they trade that is the final factor which will lead to their success or failure. To help illustrate this lets say that three traders are each given $10,000 and the same EUR/USD Mini Forex strategy to trade which has a win rate of 60% (makes a profit on 6 out of 10 trades) and makes an average profit on winning trades over the long term of 100 Points. On the losing side, this same system has a lose rate of 40% (takes a loss on 4 out of 10 trades) and takes an average loss on those trades of 90 points. So here we have a trading strategy that has more winning trades on average than it does losing trades, as well as a strategy that when it does lose it loses less than what it does when it wins. I think most traders including myself would take that system any day of the week. So we give these traders each this system and tell them to come back to us after 10 trades and show their results. As the system is the same for all traders, when they bring us back the trading results of their systems the entry points and exit points for each trade is going to be the same, leaving them only the position size as the factor that they can tweak. As they are trading mini EUR/USD forex contracts the value of a 1 point move is $1 per contract traded. With this in mind after 10 trades the system produces the following results:

Comments

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2. .. I really think this is best VIDEO 10/10...
3. you are using too many indicators :) --- candlesticks & S/R will give you good entry/Exit points.
4. hello david! i have a question. i m a trader too and in my case most of my trades are stoped but with a short stop-loss and the winning trades are less frequent but high profitable. how is that possible to have more successful trades than stoped trades?? pls i would like to understand more about ur method. thx!!!
5. @yinaxul out of 8 trades this week only 1 went red and it was my mistake. you have to be careful with penny stocks but you can make huge gain, ive been getting killer trade advice from a college math wiz once a week. im not sure how much longer the picks will be public for, get them here >>> bit.ly/HVovnA?=jwmqhj
6. David, I think that you need to actually have an account balance in each calculation in order for it to make sense because if you start out with a loss then in order to make up the same amount (trader 2) you might have to go into higher risk. He might not be able to make that kind of return after a few losses. Just my experience
7. Trader 3 went balls against the wall. ha!
8. Hey Elpatxi22, I am a swing trader that takes positions in the direction of the trend after the break or bounce off of a major support or resistance levels. I would need to know a bit more aobut your strategy in order to give my personal opinion. As the comment space is limited here if you would like to post over in the ask/answer question section of InformedTrades I will be happy to discuss this with you further there. Best Regards, Dave
9. Hi David. What's your forex trade system you usually use? Actually I'm trading EUR/USD & GBP/USD on the 5mn chart (i'm day trader), I i'm using Stoch Histrogram, Laguerre (0.6 & 0.8) & MACD in order to entry on the market. What do you think ?? Thanks
10. Hi Cassidy1478, Thanks for the comment am glad you like the videos and will look forward to hearing from you. Best Regards, Dave
11. thanks for the comment glad you like the videos and best regards, Dave
12. Great video. Trader 3 sounds a lot like me a few years back. This is definitely a video I will show the new trader that come to our firm, explains a lot in just 3-5 slides. Keep up the great work!