Determine the appropriate position size for your trades based on your account size, risk tolerance, and stop-loss levels. Proper position sizing is crucial for long-term trading success and capital preservation.
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Good risk management: Your position sizing follows conservative risk management principles.
Position sizing is your first line of defense against large losses. By risking only a small percentage of your account on each trade (typically 1-2%), you ensure that no single trade can significantly damage your trading capital.
Using a systematic approach to position sizing helps maintain consistent risk across all your trades, regardless of your confidence level in any particular setup.
When you know your maximum loss before entering a trade, you're less likely to make emotional decisions like moving stop-losses or holding losing positions too long.
Proper position sizing allows you to survive losing streaks and stay in the game long enough for your edge to play out over many trades.
Most professional traders risk no more than 1-2% of their account on any single trade.
Your position size should be determined by your stop-loss level, not your profit target.
Highly volatile stocks may require smaller position sizes to maintain the same dollar risk.
Factor in commission costs and potential slippage when calculating your position size.