Position Sizing, Leverage and Risk
You NEED to learn these concepts to become a profitable trader.
Please read this carefully.
Reply if you have questions, I'll answer when I can.
1. Total Risk
This is the maximum loss limit before you stop trading with a strategy.
Can you handle losing 30% of your capital?
What about 50%?
Know your total risk before trading any strategy.
2. Risk Per Trade
Many misunderstand this:
Low Risk: 0.5%
Medium Risk: 1%-1.5%
High Risk: 1.5%-2%
Very High Risk: 2%-3%
Degen territory: 3%-5%
Gambling: 5%+
Lower than you thought right?
Anyone trading over 3+ years knows - at some point you WILL lose 10 trades in a row.
At 5% risk that’s HALF of your portfolio…
Understanding drawdown recovery shows how unacceptable this is.
3. Position Sizing
You only need to know 3 things to size your positions:
1. Account size
2. Risk per trade
3. The distance of your stop loss
Position Size Formula
Example:
If account size is $10,000
Risk per trade is 1%
Distance to stop loss is 10%
Position size = (10000*1%)/(10%) = $1000
4. Leverage
Many traders get this wrong.
Leverage is an important tool for crypto traders that simply changes your position size.
Here's an example:
If account size is $10,000
Risk per trade is 1%
Distance to stop loss is 0.5%
Position size = (10000*1%)/(0.5%) = $20000
$20,000 is bigger than your total account size so you can use leverage to reach this.
And you know it's okay because your risk per trade is still 1%.
Once you understand this, you can start using leverage.
The market has no mercy.
Apply this guide to protect your capital.
