Hello Traders,
For 2014 I would like to wish all of you discipline and patience in your trading!
Today I want to touch briefly on a very important subject of “position size”.
Many traders spend hours and hours on trading signals, studies, reviewing the charts and patterns yet dedicate very little time to the subject of money management and one of it’s important aspects – position size.
If you have the ability, risk capital and desire to trade more than one contract, then position size is an important aspect.
How do you decide if you going to enter a trade with 2 or 10 contracts?
Are you the type of trader that gets in and out with ALL contracts or perhaps you enter and exit in layers?
Do you have certain set ups/ signals you feel stronger about and you enter with larger trade quantity? or do you enter all trades with a predefined number of contracts?
How do you calculate the number of contracts you will enter per trade? is it based on your account value? the market you trade?
does it changes with out regards to the account size?
As I mentioned in the beginning of this very short blog which meant to wake up that part in you as a trader, this subject is much deeper than a quick blog post but the questions/ thoughts above should encourage you to put more time and research into this matter.
To finish I will share just a few tips that I found useful and like to use:
1. Lower trade size when volatility increases as normally you will need to give your trade more room.
2. If you feel uneasy when in a trade, more than normal, that means you are probably trading larger quantity than you should be.
3. Try to do some math based on your trading performance, worst draw-down, amount of maximum losing trades etc. to determine the amount of contracts per $ equity in the account. Example, “I will trade 1 contract of mini SP 500 per trade signal per $5,000 of equity in the account.”
4. Evaluate periodically as your account value fluctuates and as the market fluctuates.
