Pay Attention To How You Size Your Positions

Pay Attention To How You Size Your Positions

Have you ever experienced this when trading? You start taking trades and make a streak of losses. When do you think that you are almost done with the losses your mind starts to tell you that it is the next trade that is actually going to get back the losses for you? You believe your mind and play the trade again only to add on to your losses. This post will explain how the mind takes over in trading and causes you to lose your trading capital.

This is the classic example of a gambler’s fallacy in trading. And this is the biggest culprit in trading that can actually wash away your account in a few trading sessions.

Position sizing is important

When you trade pay a lot of attention to the size of your trading positions. Speculating in the market is a risk if you do not position your bets. If you do not do that then you are exposing yourself to huge risks.

Trading is a serious business and knowing how to size your positions will decide whether you will lose your capital or gain in trading. This is important for your trading career.

The trading analysis does not guarantee a sure shot return

The market is making new highs each day and as a trader, we are tempted to trade. Most of the traders may have booked their profits at this level since there are no resistance points because the market is at an all-time high. Some trader feels that reaching such high levels means that the market may now start to consolidate and maybe see a correction before it starts to move up again.

This is the time when market participants may start to short or buy puts on the market. Some traders may place the short trades based on gut feeling while others may end up doing more complicated analysis and using statistical tools to understand what the market may do next.

Whatever you do the market gives you no certain answer. There is no technique that can let you know in advance what the market will do. All that you are doing is making a random analysis. The analysis is important because it increases the probability of a certain type of trade working out. If your analysis is good then it could work out well for you. Still, the market is random and nothing can be said with certainty.