Proper Position Size and Risk Management – (Vid. 4 of 6)

Proper Position Size and Risk Management – (Vid. 4 of 6)

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Updated: Aug 23, 2022
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This video looks at how to manage risk (sticking to the 1% risk rule) and how to get the correct position size, on every trade, so that you stay within your risk tolerance. In other words, positions are never too small or too large, they are just right. This is the fourth video in the free Forex Swing Trading in 20 Minutes video course.

I. How can I start

Practice placing orders and getting the ideal position size in a demo account before live trading. Some of the most common–and disastrous–trading mistakes are related to taking the wrong position size. Adding a zero or skipping a decimal place on your forex position size can mean huge risk and losses.

While demo trading, always double-check your position size before placing a trade. Once you’ve placed the trade, as a final check (as shown in the video) hover your cursor over your stop loss so you can see the dollars you are risking —that amount should be about 1% of your account capital.

II. Position size and risk management video

It’s important to watch the other videos in the Forex Swing Trading in 20 Minutes video series for some context on this forex risk management and position sizing video.

III. How can you use risk management strategies in your swing trading journey?

The most basic risk management strategy is to control the amount you lose on each trade. I cap my risk at about 1% of my capital per trade. That means if you have a $2000 forex account, you can lose up to $20 per trade. If you have a $10,000 account, you can lose up to $100. If you have a $500 account, you can only lose up to $5 per trade.

Risking 1% may seem like a small amount, especially if you have a small account, but you can grow your capital rapidly by keeping your risk to 1%/trade. This is because even a losing streak of several trades in a row won’t hurt you. Also, your wins are always bigger than your losses, so even if you only win 40% or 50% of your trades you are going to be pulling cash out of the market. Over time, as your account grows, your percentage gains will translate into bigger dollar amounts each month. Keep risk to 1% per trade to enjoy that payoff.

Risk on each trade is determined by the pip difference between your entry and stop loss price, multiplied by the pip value and the number of lots you take on each trade. The video shows how you can fine-tune your position size (without math) in order to find the exact position size. To see the math on calculating the ideal position size, read How to Determine Proper Position Size.


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Risk disclaimer

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

Cory Mitchell
Market Analyst
Cory is a Chartered Market Technician (CMT) with more than 17 years of trading experience. He has written for multiple publications across the financial sector, and… read more.

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3. Position size and risk management
a. Proper Position Size and Risk Management – (Vid. 4 of 6)

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