How To Choose the Right Trade Size
One of the ways of maintaining and improving your edge is to size your trades differently, based on how confident or doubtful you are in the trade. This is position sizing. Usually, we keep the same size for every trade, but when you get more comfortable with your system, you can change this slightly.
We feel more confident in some trades than others. We usually recognize that it's a similar pattern to other profitable trades, and all the conditions are similar. In this case, we are feeling confident, and it could be a good idea to increase your size - by a reasonable amount.
The first step to sizing up or down is to know your risk tolerance. You might feel very confident on a certain trade but risking 50% of your account is not the best idea. We will need to define an amount that you're able to risk and still keep going.
If you risk 1% of your account per trade, and there's a trade you feel very confident in taking, then you can risk 2% or 3% of your account. This won't blow your account if you're wrong, and you'll have double or triple your regular gains if you're right. If this is repeated a few times successfully, it can drastically increase your profit.
When an opportunity emerges and you feel a confidence level of 9 or 10, you can usually tighten your stop loss. There is a good chance the trade will move in your favor right away, so you are able to reduce the potential losses by tightening your stop.
Along with size, you can also adjust your stop loss and profit target according to your confidence level. When an opportunity merges and you feel a confidence level of 9 or 10, you can usually tighten your stop loss. There is a good chance the trade will move in your favor right away, so you are able to reduce the potential losses by tightening your stop.
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