Measuring your position size helps you trade with discipline and manage your risk. This article will discuss, "Calculating Position Size: Position Sizing Formula". Let's get started.
What Is Position Sizing?
Position sizing involves setting an actual percentage or portion of your crypto asset that you intend to risk when trading. When sizing your position, you determine what percentage of your total account value you are willing to let go of in a trade in relation to the reward you intend to receive. Traders size their positions to mitigate risk and determine how much they will earn and lose from a potential price move.
Position Sizing Formula
Position sizing can be formulated as follows:
= (Account size x Risk %) / Distance to Invalidation
These terms are explained more below:
Account size: the total available trading capital,
Risk %: the amount you are risking on a particular position (rule of thumb: should be between 1%-5%),
Distance to Invalidation: the price difference between your entry price and the price at which your trade idea is invalidated.
The first step to determining position size for each trade is to work out the maximum amount of risk you are willing to take (in other words, the maximum loss you are willing to incur). Think about the price area at which you will cut your trade and prevent further losses in case your trade idea doesn't work out as expected.
Calculating Position Size: Position Sizing Formula - hopefully, this article can help you to get some knowledge.
