Risk Management and Position Sizing
Risk, is the amount of money that you might lose if your
trade hits your stop loss order.
The chief principle of risk management, is that you should
never risk more than 3% of your trading account.
This will prevent you from blowing up your account even
after a series of consecutive loses, commonly known as a losing streak.
But wait, how do you know the amount of money that you are
risking in each trade that you place.
Do you remember about that pip value stuff?
This is where your pip value knowledge comes in, coupled by
always setting a stop loss order every time you place a trade.
Position size, is simply the lot size that you enter in a
trade with.
Don’t be overwhelmed, because you don’t have to calculate the
pip value. The only thing you need to do, is to calculate the number of pips
between where you want to place your stop loss, and the price level you want to
buy or sell at.
Let me guide you on how to use a cool free software to
calculate your position size whenever you are placing a trade.
How to calculate your Position Size
Go to your Web Browser and search position size
calculator by babypips
Tap the website
Select the currency that you have in your trading account.
Enter your account balance
Enter the percentage of your account that you are willing to
risk
Enter the number of pips between the price you placed(or
want to place) the trade and where you want to set your stop loss level
Select the currency pair that you are trading
Here is an example
After doing that, tap calculate
The number in the Standard Lots section is the one you
should use as your Lot Size
Cram it, or write it down so that you can enter it in
MetaTrader 4.
