The Right Trade Size!

Here are the two aspects you’ll need to answer before determining appropriate trade size:

• Percent risk you’re willing to accept per trade –We recommend less than 2%
• Where do you want your stop in terms of pips

Percent risk you’re willing to accept

This will have nothing to do with the market and everything to do with your account balance. You determine your risk, not the market. Your money management system will tell you where to get out of every trade. We recommend you limit your risk per trade to less than 2% of your account equity. Noting this before you enter a trade is being proactive and will prevent you from increasing your exposure based on how good a set up looks to you. All good traders look to limit risk and most poor traders neglect this.

Many good traders will keep a trade journal that will have their current account equity updated and how much they should risk on any one trade. Our $10,000 account example with the 2% max trade risk tells us that before we look at the charts, we are only willing to lose $200 on a single trade. For most traders, this relieves stress by itself.

Converting that risk into Trade Size

Now that we know how much is at risk, we next decide the best trade size for us based on our pip based exit. Here is a simple formula to use to determine your trade size:

Proper Trade Size Formula:

Your three inputs will be your account balance, what percentage you want to risk, and the number of pips you are willing to allow the market to go against you before you exit the trade.

Account balanceX% risked / stop loss distance in pips = maximum value per pip

Using our example above and plugging into the formula, here are the three inputs.

Account balance = $10,000

Percent Risk = 2%

Stop loss distance = 100 pips

Plugging them into the formula:

$10,000 X 2% / 100 pips = $2 per pip (or 0.2 lot size) approx.