One of the biggest challenges faced by beginner traders is trying to level up into trading larger positions. This entails larger risk and potentially larger losses, which could have an impact on trading psychology and emotions. In turn, these additional concerns may cloud one's judgment and make it difficult to think clearly while making trade decisions.
While this may be true, you also have to consider that a larger position size also opens up a larger profit potential on your trade. Going from 0.5% risk to 1.5% risk per trade can triple your possible profits, assuming that you win your trade. What you should remind yourself about is that your consistent profit record and expectancy should remain the same regardless of the size of your trade position. Here are some tips that could help.
First is profitability. If your account is in the green, then that's one of the go signals to trading larger positions. If you're in the red, you run the risk of digging a deeper hole by increasing your risk or position size so you might have to work on catching profits first before leveling up. In this case, stick to your usual risk sizes until you are positive, before considering increasing your risk.
Next is planning a gradual increase. Jumping from a normal risk of 0.5% to a 5% risk per trade can be overwhelming since you'd actually be risking ten times as much as you used to. Looking at this in nominal terms could be even more shocking so consider upping your risk in increments of 1% or 0.5% so that it's not too sudden.
Third is using a percentage basis risk instead of a monetary basis for risk. This will help keep things constant when it comes to trading psychology and guarantees that you won't be thinking much differently when you increase your actual account size. Trading at 1% risk for a $1,000 account would more or less feel the same as risking 1% per trade on a $100,000 account.
While this may be true, you also have to consider that a larger position size also opens up a larger profit potential on your trade. Going from 0.5% risk to 1.5% risk per trade can triple your possible profits, assuming that you win your trade. What you should remind yourself about is that your consistent profit record and expectancy should remain the same regardless of the size of your trade position. Here are some tips that could help.
First is profitability. If your account is in the green, then that's one of the go signals to trading larger positions. If you're in the red, you run the risk of digging a deeper hole by increasing your risk or position size so you might have to work on catching profits first before leveling up. In this case, stick to your usual risk sizes until you are positive, before considering increasing your risk.
Next is planning a gradual increase. Jumping from a normal risk of 0.5% to a 5% risk per trade can be overwhelming since you'd actually be risking ten times as much as you used to. Looking at this in nominal terms could be even more shocking so consider upping your risk in increments of 1% or 0.5% so that it's not too sudden.
Third is using a percentage basis risk instead of a monetary basis for risk. This will help keep things constant when it comes to trading psychology and guarantees that you won't be thinking much differently when you increase your actual account size. Trading at 1% risk for a $1,000 account would more or less feel the same as risking 1% per trade on a $100,000 account.
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