POSITION SIZING IMPORTANCE

POSITION SIZING HOW IMPORTANT IS IT ?

I always believe position sizing is as important as a sound trading system for being a successful trader. But some don’t know the importance of it and get there account blown many times. Let me share a small example to show how important is position sizing.

Say I have a capital of 1Lacs and I have a trading system which can give 3000 per lot in nifty if successful and 3000 per lot loss in nifty if fails, a 1:1 ROR sys and it’s a intraday trading system.

Now with 1 lakh if I trade intraday I can trade 4lots and positional I can do 2lots with brokerage.

So since my trading system in 1:1 if I use full capital I might get 12000 as profit. Sounds greedy right and every armature will pump in the full capital for this 12000 profit. There are some much greedy armatures who will borrow from friends, banks to pump in more capital to get rich in a short time with this system.

But what people fail to understand is that the system also has a dark side which can bring 12000 losses if I trade wrongly.

So if my first 2 trades go wrong on a capital of 1lac my loss is 24000 after which I won’t be able to trade 4lots but only 3lots. If this process continues in no time ones capital will be gone.

This temptation to get rich quickly is common in all human beings created by god. Even I remember my capital getting washed few times before I learned position.

So let’s see few position sizing steps which will make you rich but not fastly but surely. These things are learned after paying my loss as few to market if you want you can pay too else learn from others mistake.