If you can't keep your emotions in check when trading, you will lose money. Lots of it. Pipsychology was created to help minimize this from happening to you. The most significant action that you can do to improve trading profits is to work on yourself. Really knowing yourself and how you think can give you an edge that others in the market don't have. My goal is to share practical advice to Does Size Matter?
It's not what you've got, but what you do with it that counts, right?
Wrong.
If you've got $1,000 in your account, and you're trading ten mini lots at a time, you will quickly end up broke as a joke.
Size does matter...in trading. Get your mind out of the gutter.
One of the most common mistakes traders seem to make is entering a trade with the correct number of lots, otherwise known as "position size".
As a newbie, your risk should never be more than 1-2% of your total account. That means if you have $10,000 and you keep your position size to 1%, you should never risk more than $100 in a trade.
So for example, if you're trading a mini-account (10k lots) with 200:1 margin, you would be limited to 2 lots.
Most new traders think they can quickly start increasing their position size just because they get lucky on a couple trades that turned out to be profitable.
BIG mistake.
Size is a double-edged sword. Size can make you big profits, but it can make you big losses as well.
Another dumb move inexperienced traders make is increasing their position size on their next trade right after a losing trade so they can try and make up for the money lost.
This is an even bigger mistake because not only is the trader emotional because of the recent loss, but a larger position size can possibly blow his/her account.
You have to learn to decrease, not increase, your position size when trades aren't going your way.
Let me repeat that again just in case you were daydreaming.
You have to decrease, NOT increase, your position size when trades aren't going your way.
The more money you lose from your trading account, the harder it will be to recover those losses, and eventually you'll be "bankrupt".
When trading, size does matter.
Your position size should always be determined by the size of your account.
Most professional traders never open a position that risks more than 1% of their account. Some of them even believe that's still too much!
The bigger your account and the smaller your position size, the longer you'll last.
Related Posts:
- Stay Away from the Dead (Markets) 22:40 01 May 2006
- It's Not the Size of the Fish But... Oh, Wait 14:30 22 April 2008
- Common Mental Mistakes New Traders Make 01:23 09 August 2007
- Forex Trading Success Basics 00:52 12 August 2009
- Trade One at a Time 05:55 05 September 2007
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Forex Blog: Pipsychology
