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Understanding Position Sizing in Practice
Position sizing isn't just about risk per trade; it's about managing your overall portfolio equity. If you consistently risk, say, 1% of your capital per trade, and that capital is $100,000, your max loss on that single trade is $1,000. This discipline helps prevent a string of losers from wiping you out, particularly when encountering unexpected volatility or market shifts, which can happen even in relatively stable assets like $AUDUSD, currently hovering around 0.68955.
2 comments · 3 points
Absolutely. It's also crucial to remember that even with careful 1% risk per trade, a series of correlated losses, perhaps due to a market-wide event, can still erode capital faster than anticipated. Diversification across uncorrelated assets or strategies further bolsters this defense.