Lesson seven, you achieve your goals through position sizing, not your entry. Welcome to Lesson seven. My name is Sam ADA. I'm a global macro Currency Trader and the owner of FX renew calm. This is the advanced forex course for smart traders. market was a Jovovich said limit your size in any position so that fear does not become the prevailing instinct guiding your judgment.

What is position sizing position sizing is a how much part of the equation when you trade forex. More precisely, it is how much you will buy or sell in each individual position. When you place a trade. Or for an expanded definition, a series of rows about how much of each currency you should trade to meet your long term goals and effectively manage risk depending on the quality of your trading system. A bit of a mouthful, yes, but it's super important. If you can master this idea it will transform your trading.

Why? Because it's The number one thing that traders get wrong, it has the power to make or break your trading account. trading is an uncertain endeavor. No matter the research you put in, or what the experts say is there is a chance that the currency you trade will go against you. position sizing allows you to limit this risk by taking small losses and preserving your money to fight another day. But it also does much more than that.

As well as protecting you from risks, you can use position sizing to your own great benefit. That allows you to trade more in ideas that have a better potential reward, or are in strong trends to scale into trends to build large positions while keeping your overall risk small to go for big wins while conserving your trading capital by risking markets money. you achieve this by overlaying a position sizing model or algorithm on top of your entry and exit roles. Your position sizing model is an overlay This is one of the most important things to understand about trading forex you position sizing is a completely separate decision from your entry and exit rules. I'll ask you to go and have a look at the written version of this lesson to view an example of how this works. To reiterate, you can have exactly the same entry and exit and have a completely different result depending on your position sizing model.

That is why position sizing is so critical. at top traders use position sizing to achieve their objectives. Top traders think in terms of risk multiples or as market was advanced up close in multiples. You may want to review the multiples again and listen five when you're going through the coursework for this session. position sizing is used to meet your objectives and goals. Before we get into some specific position sizing models.

I would like to review some of the decisions you have been making over the past few lessons all come together on the topic of position sizing As you can see from the diagram, your broad financial goal is expressed by your financial freedom number leads you to develop your trading objective. To achieve those objectives, you devise a position sizing model. This in turn with the help of our multiples tells you exactly how much to trade. If any of these parts are missing or unclear, then traders tend to struggle with the trading system and either not make as much as they could or lose more than they should. Each of the system objectives you identified and lesson six should be considered when developing your position sizing model profit objective, maximum drawdown chance of maximum drawdown trading opportunity win rate targeted risk reward ratio. If you want to limit your chances of the maximum drawdown you may trade smaller sizes as you enter into a drawdown or if you have a low win rate then your position size will need to cater for the inevitable string of losses that you will encounter while you wait for the big winning trades to arrive.

Your position sizing model the pitch On the quality of your system, the video system The more you can invest, the easier it will be for you to achieve your goals. While you achieve your goals through position sizing, the better your overall trading system is particularly your entries and exits, the easier it will be for you to trade larger sizes achieve more consistent returns suffer less drawdowns and protect your trading capital. It's important to understand that your position sizing model while it is independent from your entries and exits should be logical and relevant to the type and quality of your entries and exits. Market wizards Steve Clark said one of my first lessons my first boss taught me is that price is irrelevant. It's all about controlling the size of your positions. How to build a position sizing model let's go through a basic example.

So I have a financial freedom number of 5000 per month. That is when I'm making 5000 per month on average from my forex trading, I am financially free. The objectives I have my trading system, our profit objective team to see In a month, no more than a 2% drawdown a month, I'm willing to risk effective percent chance of experiencing my maximum drawdown. I have 40 trading opportunities a month, and I have a 50% win rate with a three to one risk reward ratio. My trading system has a targeted profit objective of 10%, meaning oh and a 50,000 in my forex trading account to be financially free. If I can achieve my 50% win rate with a three to one risk reward ratio, my trading system has an expectancy of one.

This means that on average, each time I trade I can expect to make one hour over the course of my 40 trades for the month I would end up with 40. It can be helpful to think of our as a percentage I if I make one hour it's 0.5% 1% 2% or 3% per hour. If I take my team is in profit objective and divide it by 40 then I get 0.25%. This is 0.25% risk is now my position size when I place a trade 0.25% of my starting capital 50,000 is 125 meaning each time I trade, I would risk $125. I have a maximum drawdown level of 2%, which I hope to avoid. So I may need to trade a smaller size at the start of the month until I have some profit, then I can trade a bigger size.

Otherwise, it's going to be too easy for my drawdown limit to be heard. Please note that these choices are discretionary based on my objectives. By understanding your broad goal as expressed by your financial freedom number and extrapolating this into your system objectives. Yeah, you able to be very accurate about how much to trade in order to meet your objectives when you enter into a position. In the real world, you'll be faced with a number of subtleties and complexities as you react to the market in the growth or depletion of your account balance. Let's look at some different position sizing models.

And this is far from exhaustive and we actually have another lesson on this further in the course with More complex models. Model 1% of equity risk per trade with this position sizing model you risk affects percent of your account balance on each trade. For example, you might risk one or 2% on each trade. Stanley Druckenmiller said the way to build long term returns is through preservation of capital and homeruns. You can be far more aggressive when you're making good profits. Model term as markets money, I'm sure you have heard how important it is to protect your initial capital.

You will have also heard about some people who become very rich trading currency with very little money. And this is where markets money position sizing can help with a markets money position sizing model, you use profits you've made to trade larger positions, while trading small with your own core trading capital. That's why you limit the risks on your initial capital, you can still go for big ones when the opportunity presents itself. Model three scaling to the trained a scale and position sizing model takes advantage of training To add to winning positions aid, your trade goes into profit add smaller positions to create one large position. As you add these trades, you would move your stop loss to keep your risk on the overall position small. This way if the trade goes for you, then you can have a big one, but at no time are you exposed to a large loss.

JACK swagger author of the market wizards book says varying position sizes can be as important as the entry methodology trading smaller or not at all for lower probability trades and larger for higher probability trades can transform a losing strategy into a winning one. Different types of trades good trade is adjusted position sizing based on the timeframe of the trade. If there are more active they tend to trade smaller, whereas traders who take a longer term approach will be more comfortable with a larger degree of risk on the position. confidence level, it makes sense to trade smaller when you are not informed or anything To the markets into trade bigger when a great trade is lining up or if you are on a hot streak, milestones and goals. When you achieve a certain goal or milestone, you may want to adjust your position sizing. For example, if you hit your monthly goal, what will you do when you stop trading, reduce your position size, perhaps you will decide to swing big using some of your monthly profits today as markets money.

Your position size is the most influential decision you'll have on your success market was advanced that says 90% of performance variation amongst professional traders is due to position sizing strategies. Now it's your turn. Take your thoughts on position sizing and put them down on paper. How well you answer the questions will have a significant impact on your success. So take your time, do it thoroughly. But as always remember you can change your model in the future as you learn more.

So if you are feeling stuck in any area, simply move on. So your coursework for this lesson is to compose your position sizing model I'll see you in the next lesson.