Understanding Basic Position Sizing: The Heart of Risk Management

Hello everyone, today I want to discuss a very important fundamental in trading: 'Position Sizing,' or determining the size of each investment we make when we enter a trade. I often see beginners, or even those who have been trading for a while, neglecting this.

Imagine this: if we have a lump sum of capital and find a stock or asset that we think is very good, we decide to put a large amount of money into it all at once. For example, today $TCEHY is still down to $59.69 from its previous highs. We might see an opportunity to buy, but if we commit too much and the price doesn't go as expected, it will severely impact our overall portfolio.

Position Sizing is not just about deciding how many shares or contracts to buy, but it's about calculating how much of our capital we should risk in each trade, always keeping in mind that every trade carries the risk of loss. Determining the appropriate Position size will help our portfolio survive longer, even when the market is unfavorable. For example, $MXNJPY is still fluctuating at 9.21 baht, and there's profit-taking pressure. If we manage our trade size well, we can still enter subsequent trades, rather than losing everything in just a few trades.