How many times have we said this: THE #1 PRINCIPLE FOR OUR PROCESS IS KNOWING WHERE WE ARE WRONG.
In addition, one of the biggest obstacles for traders is EMOTIONS. It is normal to feel attached and even emotional about trading, we are risking capital, and that carries all sorts of emotional baggage (not a psychologist, I’m talking form experience). Do not feel guilty, don’t beat your self up, everyone is on the same boat.
A plan is crucial, and POSITION SIZING can be a tremendous tool. Position sizing allows you to be in control, this way, you trade ON YOUR TERMS. Here is an example:
I like EURNOK higher, I think these levels are terrific for a LONGER TERM swing trade, but I could be TOTALLY WRONG.
Here is the CHART:
This view is WRONG sub 9.9050, the key level. With that in mind, HOW MANY EUR should we BUY? That will depend on HOW MUCH RISK ONE IS COMFORTABLE TAKING TO EXPRESS THAT VIEW.
If I want to RISK $ 1,000 to express that view, using the following parameters: Entry 10.0250, STOP LOSS 9.9000, the POSITION SIZE IS EUR 69,395.20.
That may seem small, but that is the way trading is. For a trade like this one you target a LARGE MOVE, a 10-1 sort of trade, the important part is not the NOTIONAL, but the RISK CAPITAL of $1,000.
A TARGET for this move is 10.8500, that is almost an 8X return on the $ 1,000 invested.
Risk $ 1,000 to make $ 8,000.
You need 10 – 12 of these a year to be a successful trader.
Trade well, Not often.
*this is an example, I think it is actionable, NOT INVESTMENT ADVICE.