Position Trading by Dividing Transaction Lots
What is position sizing? How to divide the number of lots in each business that is convenient risk?
Trading is the art of managing opportunities and risks. Risk management intends to minimize risks in doing business and optimize profits as a result of the portfolio developing.
Position sizing is a very meaningful risk management strategy. Follow the rest of the review completely.
Arti Position Sizing
Many think that trading strategies with a large level of accuracy are everything to make profits unchanged.
Meanwhile, risk management is an aspect that ensures that a trader does not change or even injury does not change .
As a reflection, if you have a capital of US$ 10. 000( comparable to Rp140 million, if the exchange rate is Rp14,000) for forex trading.
Does 1 business want to use all that capital? Or it could be US$5. 000( comparable to Rp70 million) per business? Or how much capital allocation is right?
Many think, continue to be the amount of capital used until it continues to be a large profit that can be received if the accuracy of the trading system is large, (let's say 80%).
But what if it coincides with the 20% ration? It must also be a big loss, especially when it can spend capital!
Reportedly for reliable traders, position sizing is very much next to the "holy grail" another name for the magic and up-to-date secret to make profits unchanged.
Position sizing is a strategy to ensure that the amount of capital allocation per business is convenient and the risks are resolved.
efforts are not indecisive in calculating it, let's discuss some related matters when calculating tomorrow:
#1 Numbers Per Pip
Pip is short for "Price Interest Point" which is the basic part in measuring the change of numbers between 2 points. Pips are often written pips in English.
A pip describes how much profit or loss is made.
To calculate it wants 3 things are the companion of the currency of the money being traded, (because the different currencies of the money are different in value), the bottom base of the currency used ( USD usually), the number of numbers traded.
For money points whose value is shown in 4 decimal values up to one pip is proportional to the number 0.0001. The illustration is EUR or USD from the price of 1.1230 up to 1.1237, meaning there is an escalation of 7 pips.
Conversely for a money currency whose value is shown with 2 decimal values, one pip is similar to the number 0.01. For example USD or JPY from the price of 100.09 drops to 100.01, meaning intertwined depreciation of 8 pips.
Usually all currency companions consist of 4 decimals, but those that associate JPY.
Illustration of calculation:
You use USD in your trading account and buy 500 worth of EUR or GBP . 000. If EUR or GBP goes 1 pip, how much is it worth in USD?
EUR or GBP means EUR as an important currency or 1 EUR is proportional to how much GBP. Until if you execute a long position worth 500. 000 parts, meaning 1 pip is similar to 50 GBP.
On the contrary, your account is in the base of USD currency, until now dividing the figure of 1 pip in USD.
Assumption GBP or USD= 1.25.
Up to 50 times 1.25= US$62.5,
He means 1 pips in this business worth US$62.5.
Illustration of the calculation if the base of the currency under your account is not USD but SGD:
If you are in the business of buying positions to EUR or USD worth 100. 000 parts. What happens when EUR or USD rises by 1 pip? What is the number 1 pip in SGD?
In the case of the companion currency EUR or USD means EUR is the lower currency or 1 EUR can earn such an amount of USD . Up to when the number EUR or USD is comparable to 100. 000 means that 1 pip is similar to US$10.
Next, settle to change USD to SGD which is under the currency of the money in your account. When USD or SGD 1, 4 to SG$10 multiplied by 1, 4= SG$14.
That means 1 pip is worth SG$14.
However, at this time there are also many agents who present various currency companions in the form of 5 decimals, (3 decimals for JPY). The illustration is EUR or USD 1, 13354 or USD or JPY 100, 015.
Well, in such quotes, the last digit is not Pips, but Fractional Pips or Pipettes. To measure price movements, Fractional Pips are not counted as one whole Pip, but only one-tenth of a Pip( 1 Fractional Pip= 1 or 10 Pips).
#2 Risk Allocation in USD
It's important how much money to risk in one business. Generally, there are 1 %, 2% or 5% for professional traders, but when you're a newcomer it's 1%.
This is intended to prevent the account from losing the right hand from only part of the business.
To be able to profit is not changing and not just occasional profits that means preventing accounts from getting seriously injured in some business times .
Because each time you have a butt, you need a larger percentage of profit than before to return to important capital.
Illustration:
If the capital is US$10. 000 and an allocation of 1% until each time you do business you only use a capital of US$ 100. As a result, the risk is no more than US$100.
#3 Ensuring the Number of Stop Losses
The determination of the number of stop loss numbers proves how much risk you can get and does not condemn the health of your portfolio. The principle in determining the stop loss is that the value must be less than the target profit allotment.
Part of the analogy of loss as well as the recommended profit is 1: 2 or 1: 3. It means stop loss 1, profit target 2, and the next.
Dividing the Number of Transaction Lots
In the previous review, we have divided the budget allocation used in each business, which is 1%, 2% or 5%. For newcomers, it is recommended to use 1% of the capital allocation.
The next issue is 1% of the capital proportional to how many lots?
Until the illustration of the calculation:
Position size= 100 or( 200*10)= 0.05 lots.
Presumption: figure per pip US$10
Stop loss= 200 pips
Total capital appropriation = US$100.
Up to a budget allocation of US$100 allows for a business of 0.05 lots.
But just be quiet, you don't need to have this kind of dividing headache before business. To save more on duration and be more common, use a forex calculator.
With automatic calculations until you only need to enter the numbers.
Furthermore, here are some illustrations of forex calculators that can be used well:
MyFxBook– for forex traders
Daniels Trading– create futures contracts.
Position sizing is a significant factor in the success of a trade. this protects accounts and portfolios so far away and fresh. Safe working😊