Money management is one of the pillars of successful and professional trading.
Determining the correct position size:
If you choose a reasonable position size, you can minimize your losses and also cope with larger drawdown phases. This creates a solid foundation created for long-term profits.
Do you want to limit your overall risk? Then there is no way around that To keep the risk for each of your individual positions within clear limits. 2% – more You should not risk your capital on any position.
Why 2%? Self with 5 consecutive wrong trades you risk a maximum of one drawdown of 10 %. A little warning: this order of magnitude for the risk but is only useful if you have different positions Distribute markets; for example with positions on the stock market, on the commodity markets and the forex market.
If you just want to focus on the stock market instead, it offers the individual risk of a position again to 1% of the available capital to reduce. The reason is obvious: the risk of getting one Market behaving contrary to your trading strategy is much larger than with 3 or 4 diversified investments. With a maximum risk of one percent In this way, you can survive even larger series of losses of up to 10 complete wrong trades with an acceptable drawdown.
Risking only 1% of the available capital does not mean only 1% of the depositary capital to spend on the trade. That 1% is all about risk the position, i.e. by the amount that would not be paid in the event of a loss in the trading setup more will be available. Ultimately, the important question is: how much can one do Trade in capital used and how many pieces can be bought become.