I recently created a demo trading account after a year of studying and doing paper trades of investments and have a question about Position sizing when using trailing stops. I do a strict 1% risk per trade by placing stop-losses and take-profits on support/resistance or Bollinger Bands, etc. and adjust the position size based on that. So far I have lost 7.5% of my account. Not great, but I’m happy with the lessons each bad trade has taught me regarding patterns and when to trade.
However, there are many times where my trade is profiting but ends up getting killed by a sudden downturn hours in (I’m trying swing trading). It’s frustrating watching the profit creep up slowly over a few days, then having a sudden whipsaw hitting the stop-loss in a moment. Hopefully using trailing stops will stop me losing all the profits that I make on those occasions or at least reduce the loss my account suffers. I do have a take-profit on every trade but it rarely gets there without the whipsaws.
Since setting up each trade with a strict stop-loss and an additional trailing stop should reduce the amount of risk per trade, could I realistically increase the position size as well without dramatically increasing the amount I risk per trade? Does anyone have any methods or suggestions for what sorts of systems I could use for determining the right amount or is it not worth risking? Thanks for any and all responses.
The strategy I use is 1% per trade. I let the trade run to anywhere between 5-20%, this keeps my losers wiped out with big wins.
The key is to look at your win loss ratio. If you have a high w/l %, then you can afford to risk higher percentages in each trade. I have a good w/l ratio, but I choose to play it conservatively.