The importance of choosing a good trading size per trade

How many times did you ask yourself what size to take in a trade?

Then you turn to the risk management rule which is saying not to risk more than 1-2% of the equity.

But then in real trading what is happening? You apply the risk management rule but your size is 3 standard lots (300.000 units) on a $3.000 trading account! Now let us go back to the past. Let us say that you are obeying the risk management rules, you have placed the stop loss according to this rule. Then some news driven event is hitting the market and you are experiencing slippage (In forex, slippage occurs when an order is executed, often without a limit order, or a stop loss occurs at a less favorable rate than originally set in the order. Slippage is more likely to occur when volatility is high, perhaps due to news events, resulting in an order being impossible to execute at the desired price. In this situation, most forex dealers execute the trade at the next best price unless the presence of a limit order ceases the trade at a preset price point). Your stop loss is not respected and you have 3 standard lots in your position with $3.000 equity. Instead of  $70 loss you now have close to $1.000 loss per trade!

The slippage along with the other mostly psychological facts now puts you in a position that you need much more to recover from your loses. That is why we recommend you to apply the following scale for maximum lot sizes for a different equity:

• $1.000-$3.000 max 0.05 (5.000 units) lot size per trade

• $3.000-$10.000 max 0.10 (10.000 units) lot size per trade

• $10.000-$20.000 max 0.50 (50.000 units) lot size per trade

• $20.000-$50.000 max 1 (100.000 units) lot size per trade

Now I know that most of you would say that this is too conservative but let us look at the retail investor’s statistics. 98% of the retail traders have losses and they are not profitable. You can imagine that almost 60% of this losses and equity wipeout is derived from the oversizing. Oversizing is not just happening because of the slippage due to high forex volatility, it is happening also because of the trader’s mindset, psychology and the lack of discipline. Some traders have a good start applying all the principles from trading and they build up equity. Then they start to trade with the big sizes for their account and they start to carry greater losses by moving stops. Psychology is kicking in I don’t want to lose what I have accomplished in the recent months. This kind of oversizing when the position is not going in your way then is leading to losing equity.

Even with the smaller sizes, when you enter a good trade, you can make big profits and increase your capital much faster than you think. This will be accomplished with much less stress that when you are using big trading sizes, and be aware of the fact that the trading is best when your mind is calm.

The most important fact you should know that your trading is all about the probability of survival. You need patience and discipline to push yourself in this “lucky” 2% of the traders that are winning over time.

To improve your trading psychology and to improve your trading we have developed a Funded trader program which will provide you intensive two weeks training before you receive 10k in funds for your Live trading account. We will prepare you to and constantly overview how to:

•  Apply proper Methods and Strategies (using Technical Analysis of course)

•  Apply good Money Management

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Top-down trading technical analysis, we developed over time, have all three basic principles compiled. Analysis starting from the higher time-frames will lead you to reveal of the key breakout, support and resistance level which will give you high probability entries with the low risk (proper money management), but this approach also requires discipline. This three basic principles compiled, should lead to a long-term profitability and it should change your mindset in trading, meaning not to give up after the period of drawdown, and managing your emotions in difficult trading periods and difficult market conditions.

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