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Do you know what the size position is? Do you know lever or lever?
Position size calculation is one of the most important factors of risk management and leverage adjustment in every trade. Therefore, not understanding it correctly causes huge losses for the trader and causes some traders to be pessimistic about margin trading. In this article, we will examine in detail how to calculate and adjust it accurately when opening a position.
Position Size: The number of Bitmax contracts or the volume of shares that we intend to buy or sell in one trade.
Entry point: The price at which our buy or sell order is executed.
Stop loss: An order that closes our losing position in order to prevent further losses.
Balance: The total balance of our account.
Risk Amount: The maximum amount that we will lose if a trade fails. For example, if we don’t want to lose more than 2% of our account balance in one trade, we will be able to calculate the “risk amount” with the following formula:
Risk Amount = Account Balance x 0.02
Liquidation: The complete loss of our account balance due to improper use of leverage.
Position size means the stock volume or position size that we intend to open in each trade. With the help of leverage and position size, we can balance between “maximum risk per trade” and “stop loss distance to entry point”. (In this article, each share is considered a contract in Bitmax)
In each trade, the greater the distance between our entry point and the stop loss, the higher our risk, and the smaller the distance, the lower our risk. But with the help of position size, regardless of the distance of the entry point and stop loss, we change the amount of risk in each trade to the desired amount. In other words, we will lose a fixed percentage in each trade in case of failure in the trade. In order to better understand the issue, pay attention to the following three examples, in these three examples it is assumed that our account balance is 1000 dollars:
Stop loss = amount of risk (example 1): suppose that in a trade our stop loss point is 2% away from the current price and we are willing to risk a maximum of 2% of our capital in this trade, so without needing Calculating the position size, we enter the trade with the total balance of the account, i.e. 1000 dollars. (In case of loss, we lose 2% of the account balance equal to $20)
Stop loss > amount of risk (example 2): suppose that in a trade our stop loss point is 4% away from the current price and we are willing to risk a maximum of 2% of our capital in this trade, so by calculating the position The size has reached 500 dollars and we reduce our risk from 4% to 2%. (With this action, the profit from the trade is also halved.)
Stop loss < amount of risk (example 3): Suppose that in a trade our stop loss point is 1% away from the current price and we are willing to risk a maximum of 2% of our capital in this trade, so by adjusting the position The size has reached 2000 dollars and we increase our risk from 1% to 2%. (With this action, the profit from sharp trading is doubled.)
According to the above explanation, we will now be able to correctly understand the size position calculation formula:
If you have noticed, there was not much mention of Lorage in the above explanation, because contrary to the belief of the general public, the important issue is to fully understand how to calculate the position size, and in other words, the size of our position size represents the appropriate leverage in every trade. For example, if we have a position size of 2000 dollars with a balance of 1000 dollars, our leverage is equal to 2, and if we have a position size of 10000 dollars, our leverage is equal to 10. In short, contrary to the belief of the majority, we are not allowed to change the leverage at will, and the stop loss distance and the calculated size position give us the limit of leverage.
If we use Margin Cross, our entire balance is used in each trade and our position size indicates the used leverage (Bitmax calculates it automatically) and if we reach the liquid point, our entire account will be liquidated. But in case of using isolated margin, Bitmax does not allow us to use a position size larger than the selected margin.
By correctly calculating the position size + setting the stop loss correctly, we don’t need to use isolated margin and we easily cross trade with margin. It should be noted that if the position size and stop loss are determined correctly, it is almost impossible to liquidate the account.
By placing about 15% of our total balance in Bitmax, we can almost eliminate the risk of account closure (although until today Bitmax has allowed withdrawals to limited accounts) or any other unforeseen possibility. For this purpose, 85% of the balance is kept in our main wallet and our size position is calculated and applied based on the total amount of the account (85% + 15%). The only important point is that the distance of the liquid point should not be less than the distance of our stop loss.
The liquid point distance should be greater than the stop loss distance. Otherwise, you will be liquidated before the stop loss is activated.
Be sure to use stop loss of the market type (Stop Market).
Risk management is not only the calculation of position size and is a very detailed topic.
The shorter the distance of our stop from the entry point, according to formula AA place to use a higher size position is provided. In this case, with higher leverage, the probability of our profit increases, but the probability of the price hitting the stop loss increases, so observe the balance!
Never choose more than 3% maximum risk under any circumstances, and for a novice trader, 0.5% to 1% is a suitable range. Over time, the increase in win rate can increase the maximum risk up to 3%.
In order to calculate the lot size in Forex, you can use a similar formula with more details. If friends welcome, articles and tools will be provided in this regard.
Despite the abundance of English resources, until today none of the VIP or free Iranian groups, and none of the active people in the Iranian crypto market, have provided an article or training or even a correct telegram message in this regard, and unfortunately, not even a word related to Size position is not found in Google. These days, providing VIP signals with arbitrary and unprincipled leverage for members is a normal thing in Iran (however, the maximum risk of each user is different and a very small stop loss is needed to use leverage of 10, 20 and 50). Such a situation has caused my personal dissatisfaction and this shows the ignorance of most of the friends of the familiar name of the market. Such unmentioned cases are abundant in this market.
Although from today we will see the addition of “Position Size” to Iranian channels, but it is hoped that one day friends and loved ones will help the scientific load of Iranian society and even me personally by providing free or even non-free educational tips and key to a healthy competition. Finally, as mentioned many times in Top Traders, I am still learning and no one is perfect, be successful and profitable.
