# Forex Forum to Share, Discuss, Communicate and Trade Forex

## Finding the Right Trade Size for You

This forum is for Forex education and for teaching and learning the ropes of trading.

### Finding the Right Trade Size for You

Trade size is an important aspect of every trading plan. Traders quickly forget this to their own peril. Many traders are not reaching their trading goals because their trade size was too large for their account equity which leads to reluctance of letting go of losing trades.

When trade size gets out of hand and too large, all the analysis in the world is worthless. The risk can quickly outweigh the benefits. Because of this, having a formula to manage your risk is of extreme value for your trading career. If you’re not a math major, no worries at all. A simple formula is provided at the end of the article for you apply moving forward.

Now, let’s walk through the application in finding the right trade size for you.

*Examples below will be filtered through the eyes of a \$10,000 account with 2% max trade risk rule to determine trade size.

Here are the two aspects you’ll need to answer before determining appropriate trade size:

* Percent risk you’re willing to accept per trade –We recommend less than 2%
* Where do you want your stop in terms of pips

Percent risk you’re willing to accept

Many good traders will keep a trade journal that will have their current account equity updated and how much they should risk on any one trade. Our \$10,000 account example with the 2% max trade risk tells us that before we look at the charts, we are only willing to lose \$200 on a single trade. For most traders, this relieves stress by itself.

Converting that risk into Trade Size

Now that we know how much is at risk, we next decide the best trade size for us based on our pip based exit. Here is a simple formula to use to determine your trade size:

Your three inputs will be your account balance, what percentage you want to risk, and the number of pips you are willing to allow the market to go against you before you exit the trade.

[CENTER]Account balanceX% risked / stop loss distance in pips = maximum value per pip[/CENTER]

Using our example above and plugging into the formula, here are the three inputs.

Account balance = \$10,000

Percent Risk = 2%

Stop loss distance = 100 pips

Plugging them into the formula:

\$10,000 X 2% / 100 pips = \$2 per pip

DailyFX recently went through 12 million live trades to find the common traits of our successful clients. Leverage was a main focus because many traders know what amount of leverage is available but few knew what was amount was best. Many new and inexperienced traders over expose themselves and when the market went against them, a large percentage of their account dissipated. Successful traders in our study consistently stayed under 10 X effective leverage and were often closer to 5 times effective leverage.

Here is a graph from the study to show you profitability percentage and it’s correlation to lower effective leverage.

Open Account: Real / Demo
http://www.instaforex.com/

painofhell

Posts: 1074
Joined: Sat Aug 30, 2014 3:24 pm