Position sizing is one of the trading strategies that all traders can follow. Simply speaking, position sizing is the determination of the amount you can put on a trade. The major factors which determine a profitable position size are:
- The size of the trading account
- The product(s) trading (stocks, options, future commodities or forex)
- The expected chance of profit/loss
- The maximum expected profit/loss
- The style of trading
Position sizing is considered as one of the major trading strategy because if you trade with higher amounts from your trading account (eg: 25% or 30% of trading account), your account may wipeout with in 5 trades or so. On the other hand if you trades with smaller amounts (eg: 2% or 3% of your trading account) you are destroying your chance of getting quickly profited.
Today there are many calculators are available to determine your account position size. There are also some trading softwares available which are integrated with these calculators.
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