Calculate the position size of your trade
As both services work with CFDs
or Spread Trading
, you can follow this formula to calculate your position size.
How to calculate how many CFDs to trade using the 2% risk rule.
Here are the specifics for the last profitable trade with Red Hot Storm Trader:
Portfolio value: R30,000
Risk per trade: 2%
Go long Anglo (AGL) CFDs
Stop loss: R386.00
1. Risk in your trade
= (Portfolio value x Risk % per trade)
= R30,000 x 2%
2. No. Of CFDs to trade
= [Risk in trade ÷ (Entry - Stop loss)]
= [R600 ÷ (R399.27 - R386.00)]
= (R600 ÷ R13.27)
= 45 CFDs
This means you would have bought 45 CFDs in this trade.
If you're a spread trader, you'll follow a similar formula to calculate your 'Risk per cent move’.
1. Risk in your trade =
= Portfolio size: R30,000
= Risk per trade: 2%
= R600 or 60,000c
2. Risk per cent move
= (Risk in trade ÷ (Entry - Stop loss)
= 60,000c ÷ (39,927c - 38,600c)
= 45c = 0.45
In your Spread Trading platform you'll type 0.45 where it says ‘Volume’. ‘Risk per point’, Value or ‘Risk per cent’.
Action the trade You'll then
- Go onto your trading platform
- Search for the market i.e AGL
- Click the 'new order' box
- Choose 'limit order' (to choose your exact entry price as per the email)
- Fill in the trading details including the position size.
- Click 'done' or 'place'
Or, if you're not by your trading platform, you can simply phone your broker to give the above information you gather in step #2 and #2 for them to action the trade for you.
Wait for your next email or SMS
Either you'll receive an email to:
~ Modify your stop loss to lock in a minimum gain
~ Adjust your take profit – to increase your potential profit or
~ An update reminding you about how the trades are performing and what trades are lining up.
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What a Trading Tips reader has to share:
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Q. "As you stated in one of the articles Timon, successful trading is about the habits you have and the lifestyle changes you apply to your trading.
If there was one bad habit I should remove, completely from trading this decade, what would you suggest?"
A. If I could only suggest one bad habit to remove this decade, it would have to be avoiding to act to soon with your open trading positions.
If your trade is in the money and in profit territory, DON'T close your trade before it hits your take profit.
This is not only because you're going against your trading strategy, but the fact that you'll set a precedent and create a habit to keep going against your trading strategy in the future.
You’ll find that, there’ll be a time where you no longer follow a trading strategy but make your trading decisions on emotions and feelings.
And as you and I both know, NO SUCCESSFUL trader ever survives through guesswork and emotions.
This is the same for closing your trade for loss, before it hits your risk level (stop loss).
Don't try and save a few bucks by closing your losing trade too early.
You'll find that often the market will make a turn around again and head right back into profit territory.
Not only will you feel regret for acting too soon, but you'll also feel that lurking shame for going against your trading strategy.
I have a simple mantra I say when I feel like closing out my trade too soon.
"An open trade does not mean a profit or a loss until the trade is closed."
This means a losing position can still turn around and end up becoming a winner where it banks you a profit…
Analyst, Pick Pocket Trader