Hey girls! Recently, many newbies have been asking me how to calculate position sizes to trade safely and avoid liquidation! Today, I’m going to share a super simple and practical position sizing method that will guarantee you can get started after reading it and say goodbye to blind trading!
Let me start with my own experience. When I first started trading, I didn’t know anything. I just bought whatever others told me to buy. As you can imagine, I was either trapped or liquidated, which broke my heart! Later, after much pain, I started to learn position management, and gradually turned losses into profits. So, position management is really important!
Why Position Management?
Simply put, position management is about controlling the percentage of your funds you invest in each trade. It has a big impact:
- Control Risk: Avoid going all-in and losing everything.
- Protect Capital: Even if a trade goes wrong, you can keep your strength to wait for the next opportunity.
- Maintain Stability: A reasonable position size can keep your mind calm, so you don’t get emotionally affected by gains and losses.
So, how do you calculate position sizes?
Here, I’ll introduce you to the most straightforward method: Fixed Percentage Risk Method
Formula: Position Size = (Total Capital * Risk Percentage) / (Entry Price – Stop Loss Price)
Don’t worry, I’ll break it down for you:
- Total Capital: The total amount of money in your account that you can use for trading.
- Risk Percentage: The maximum percentage of your capital you are willing to lose on each trade. Generally, beginners should keep it within 1%-2%, or even 0.5% for a more conservative approach.
- Entry Price: The price you plan to buy at.
- Stop Loss Price: The stop-loss price you set, which is the maximum price you can afford to lose.
For example:
Suppose you have 10,000inyouraccount,youwanttobuyBTC,andyouplantoenterat10,000inyouraccount,youwanttobuyBTC,andyouplantoenterat26,000 with a stop loss at $25,000. Your risk percentage is set to 1%.
Then, your position size = (10000 * 1%) / (26000 – 25000) = 0.1 BTC
That means you can buy a maximum of 0.1 BTC this time.
Experience and Evaluation:
I have been using this method myself, and I feel it is really effective. Its biggest advantage is that it is simple and easy to understand, and it can be adjusted according to your own risk tolerance. Since using this method, my trading mindset has improved significantly, and I no longer have to worry about liquidation!
Precautions:
- Always set a stop loss! This is the last line of defense to protect your funds.
- Adjust the risk percentage according to your own situation. Don’t blindly pursue high returns, controlling risk is the key.
- This method is just a foundation. As you gain more trading experience, you can learn more advanced position management methods.
Hope this guide can help everyone! Remember, trading involves risk, invest with caution!