Let’s break down an example of position sizing for shorting $ETH while managing risk effectively.
Scenario:
- ETH fall to $3000 and you think that it will fall even more before climbing up back to $3000, and there is little chance that it will rise to $3300
- Total Account Size: $10,000
- Risk Per Trade: 2% of the account, or $200 (adjust this to your risk tolerance)
- Short Entry Price: $3000 per ETH
- Stop-Loss Price: $3300 (risking $300 per ETH on the short)
Position Sizing Calculation:
To determine the position size, calculate how many $ETH you can afford to short based on your $200 risk limit.
1. Risk Per ETH: $3300 (stop-loss) - $3000 (entry) = $300
2. Account Risk Amount: $200 (2% of the $10,000 account)
3. Position Size: $200 (account risk) ÷ $300 (risk per ETH) = 0.67 ETH
Summary:
In this example, you would short 0.67 $ETH at $3000, with a stop-loss at $3300. This way, if the trade goes against you, the maximum loss would be $200, which is 2% of your account.
Key Takeaways:
- Stick to your risk level: In this example, the 2% account risk keeps potential losses manageable.
- Adjust position size: based on the distance to your stop-loss. The further away your stop-loss, the smaller your position should be.
By sizing your positions this way, you maintain control over potential losses, even when markets move against you. 📉
