I’m on the lesson for positions sizes and I’m not 100% sure I understand how to properly calculate the position size for a trade. I have tried working some examples of my own and I’m not convinced I’m doing it correctly. Please see my below example and tell me if I’m wrong when calculating position sizes. I mean if I’m doing the steps correctly not if the math is right
Say I have an account of 10.000$ and I’m trading EURUSD.
I decide to enter at 1.10200
I use the blue line as support and place my stop loss right below it at 1.09800.
Steps for determining position size for a trade:
- Determining account risk:
Account_Risk = 100$. (Maximum 1% on any trade)
- Determining trade risk for this particular trade:
Trade_Risk = 1.10200(buy value) - 1.09800(stop loss value) = 0.004(40 pips)
- Choosing Pip value:
Pip_Value = 0.1$ because I want to have the position size in micro lots.
- Calculating position size:
Position_Size = Account_Risk / ( Trade_Risk * Pip_Value) = 100$ / ( 40pips * 0.1$ ) = 100 ulots
So for this one trade I should buy no more than 100 microlots to stay within my planned risk management rules(no more than 1% of my account on any trade).
For the next trade I will modify the Account_Risk(to be 1% of whatever value the account will be), Trade_Risk value after I chose my entry and stop loss and recalculate the position size. The account_risk of 1% should stay the same for all trades. If I do this long term I will have an average not more than 1$ of my account risked per trade(not very sure of this one last statement).
Please tell me if this is correct way of determining position sizes and what could be improved. Thanks!