Trade Sizing: Determined by the amount of risk in a trade.
Risk Management: Critical to maintain a maximum loss per trade.
Time Duration: Plays a role in determining the size of the trade.
Determining Trade Size by Risk
Maximum Loss Rule: Example given is a $100 maximum loss per trade.
Risk Per Share:
Example: 40 cents risk per share.
If 100 shares are bought, loss = $40.
If 200 shares are bought, loss = $80 (within $100 max loss).
Greater size in shares increases potential upside.
Calculating Trade Size Examples
Example 1:
80 cent stop loss -> 100 shares.
40 cent stop loss -> 200 shares.
23 cent stop loss -> 400 shares.
All trades maintain the same $100 risk but vary in size based on the stop loss.
Other Considerations for Trade Size
Upside Potential: Not only risk but also potential gains are considered.
Time Duration:
Shorter trades allow for larger sizing due to less risk of unexpected events.
Longer trades require smaller sizing due to increased risk over time.
Time Duration Impact
Short-Term vs. Long-Term:
Short-term (e.g., 5 minutes) is less risky, allowing for larger trades.
Long-term (e.g., 5 years) has more risk, requiring smaller trades.
Scalp Play: Example of a short-term trade allowing for larger size.
Professional Trader Tips
Mandatory Add on First Color Change:
After initial entry, add on the first opposite color bar that is wiped out.
This strategy helps separate successful traders from break-even traders.
Importance of Adding:
The first color change add is crucial for moving out of break-even trading zones.
Summary
Traders should use maximum loss per trade and stop loss distance to determine trade size.
Consideration of upside potential and time duration is crucial.
Professional traders must follow specific strategies like the mandatory add on the first color change to ensure better performance in trading beyond break-even.