Why is Position Sizing Important in Forex Trading?
This means that the 5th article discusses position sizing in forex trading. With the reappointment of this topic, hopefully it can increase the confidence of traders that position sizing is really important.
Position sizing is an important element in risk management. This is what can determine whether you really use your capital well and efficiently so that your “age” in trading can be long. Position sizing can also keep you from overtrading , which will certainly destroy your trading career.
Indeed, when you involve a large number of lots, you will be able to get multiple profits. But have you ever thought, what will happen if it turns out the market moves against your position? Of course the loss that you will suffer is no less big.
If you don’t know how to use your capital properly (read: lot), it is very likely that you will use a lot that is too large. Even though the use of lots is too large it will make your capital vulnerable even when the market only moves a few pips against your position.
When calculating position sizing , you must know and determine your risk profile . If you want to do a transaction with a large lot, try asking yourself why you want to do that. There is no one who just does something in business, there must be risk planning and anticipation by taking into account the strength of capital. In forex trading too.
Go back to a trading attitude that is too aggressive: imagine you enter the market with a “giant” lot, hoping the market will move according to your wishes so that big profits flow in minutes or maybe even seconds.But imagine what happens when it turns out – and this often happens – the market against your will?
There aren’t many traders who understand how much harm they can suffer. When losses have occurred, many have not been able to control their emotions. Remember, the bigger the lot used, even the movement of a few pips can produce massive losses.
Well, to react to it, you must realize that problems like those presented above really exist and can befall you. This awareness will make a trader know that there is something that must be improved on his mindset all this time. Over time, he will realize that a large number of lots has nothing to do with trading success. Not very important, because the most important is the ability to anticipate risk with the right number of lots, not large.
By adjusting the number of lots, you will automatically manage your risk tolerance well. You will limit your potential loss to no more than the risk limit set in the trading plan . Because you already know exactly how much loss (maximum) will be experienced, then you will easily apply the strategies that have been mixed before. Psychological burdens will be very light, because even if the loss then the loss does not hit because it was ready beforehand.
In addition, when a loss approaches you will not be trapped in confusion, what to do. You will calmly take the necessary steps in accordance with the trading strategy and trading plan. Even cut loss can be done almost emotionally. Yes, because basically you have realized that (loss) will occur.
Often traders make the mistake of just focusing on finding “perfect” entry and exit levels, when in fact what distinguishes successful traders from failed traders is risk management and capital management. The first step to implementing good risk management and capital management is to do position sizing.