What Lot Size To Use? | Risk Management Basics

risk management is probably the number one thing i wish i knew about at the start of my trading journey it's the number one reason why i think people begin to lose accounts below accounts at the start of their journey if you guys have already seen the video i'll put it up on the top right about how the start of my journey was and i pretty much was up and down it was such a roller coaster because i didn't know proper risk management i didn't know what it was or how to actually utilize it risk management is something that's going to be able to differentiate traders to gamblers right apart from your strategy what's within your strategy what's within your trading plan is your risk plan your risk management and later on in this video we're going to jump on the charts and i'm going to show you some tools and how to actually execute and use proper risk management and use that effectively but let's go through the theory stuff and i just wanted to share my risk strategy which is basically i ever only risk 1 per trade so what that means if i'm risking one percent of my account balance per trade is that i would have to lose a hundred times in order to completely blow my account a common question that i always get is what lot size do i use and that that basically indicates to me that that person has no risk management because the thing with lot size is it's gonna depend on your account balance the pair and your stop loss those three things change but your risk management should never change so you can either risk one percent two percent three percent maybe five percent whatever your strategy may be or your risk appetite that's up to you but that should always be fixed that should never ever change so yeah your account balance is going to change depending you know you could be trading with 500 10 000 i don't know a million dollars of course your pair is going to change and then your stop loss will change you know you could have a fixed stop loss i don't know what your strategy may be but for me it will change depending it might be 12 pips 15 pips eight pips etcetera etcetera but what will never ever change is your risk management and that is so important so hopefully you guys will stop asking me you know what lot size i use for like euro dollar or what's the best you know lot size to use for gold because again that's that's the wrong question the question should be how much do you risk per trade and then the rest is going to be up to you and your strategy now i wanted to also stress the importance of why you should always keep it you know that set number if you commit to one percent don't start changing two percent of three percent because you feel like it or because you feel like this trade is going to be a winner you want to like double you want to double your um your percentages by risking two percent instead of one percent if you're gonna commit to one percent then commit to one percent if you're going to commit to three percent commit to three percent because what's going to happen and this is something that i i personally haven't experienced but i've heard stories of it is that you're risking one percent and then you're playing with the numbers you start risking three percent because you feel like this trades gonna be a winner and then you suddenly lose that three percent so then you go back to risking one percent and then that trade banked i don't know you know let's say banks five percent and they're like oh i could have made 10 if i just you know risk two percent like you start playing with the numbers and that's how you start getting emotional and that's not a that's not a trait of a consistently profitable trader who's confident in their trading and in their plan if they're completely going back and forth and then they start getting you know pissed off if they you know they could have would have should have made um x amount of percentage because they could have risked more you know you've got to stick to one risk but again like that was like the biggest mistake that i made in the start of my journey was not understanding risk you know um so please please please if you are new to the forex market so please look into risk management make a decision on the risk you want to use and then i'm gonna go into the apps later on to show you exactly what lot size you can use with the pair account balance and the stop loss you'll be using in pips so let's have a look at you know probabilities in terms of you know ten trades and you're risking one percent let's say eight of those trades lose so you're down eight percent but then let's say two of those trades banks you four percent so net profit you're just you're at break even let's say you start messing with the numbers and you just start to you know pick and choose depending on the pair or the kind of setup then that's gonna mess things up you know you won't be down eight percent you could be down like fifteen percent twenty percent and that's really gonna with your emotions i guess a question that might come up is do i reset like my risk per account balance per day or is it per trade or is it per month because what i used to do before was i would actually reset it per month because i wasn't taking as many trades but as i've been evolving um in my strategy i now actually reset sort of the lot size or the quantity size per per trade like per end of the trade so let's say i i'm at a hundred thousand and then i lose one percent so i'm at 99 k then i would for the next trade i would put my account balance as 99 okay 99 000. uh let's say i lose again and then that will be one percent of the 99 rather than one percent of the 100 000. so it's all compounding so as you're growing your account your lot sizes will gradually increase as well so that's another thing that i just wanted to point out is that yeah i recalculate the lot sizes with the same risk per per new trade if that makes sense so we are just jumping on the charts this is trading view this is the software that i use to analyze trades and to also back test highly recommend it a link in the description if you're interested but i just wanted to show you the settings that you can switch up when you are forecasting trades if we just go down here in the predictions and measurement tools you'll see long and short positions and if we just double click it you can sort of see all of this options available this is the risk to reward so let's say you have i don't know 500 us dollars risking one percent let's just bring this back let's just say we were taking a long and we're targeting highs up here for example so you'll notice that your risk reward decreases as your stop increases and your risk to reward increases as your stock decreases and that is exactly the same if you had i don't know 500 000 us dollars the same risk to reward you'll see your quantity size here as well but i can show you a much clearer way to also look into it because i don't like to use it off of trading view i like to use my effects book or an app called stiney so definitely go into trading view and you know change your account balance what your risk is and obviously if you're doubling your risk you see your quantity size pretty much doubles as well your risk reward you just have to again manually double that now if you literally just type in my fx book position size calculator you can come up to this page and you can also input your own details here so for example a hundred thousand risking one percent let's say 20 pips stop loss for euro dollar you'll see that we're gonna risk we're gonna use five five lots and if you lose you'll basically lose one thousand dollars which is one percent but if we were to do 25 pips you'll see that the again the lot size changes but you still risk the same amount this goes to show that your lot size will always change as you change your stop loss assuming that you have a fixed risk now again this also changes with pair so with a 100 000 account risking 1 with a 25 pip stop loss it's four lots with euro dollar but let's try euro yen it's 4.17 lots and this just goes to show how you cannot be asking what is the best lot size to use it really does depend on your account size your risk stop loss and the pair if we look into you know a cad pair like let's say aussie cad again it'll change this is why it's so important to to calculate it to understand risk management because this is going to be super important you know when you you move forward and you elevate in your trading journey so what is similar to this if you're on your phone you can use an app called stinu pretty much the same principles you know you can choose your risk your account balance your stop loss and then your currency pair and they have it on the app store as well again this is why there's a reason why they ask you you know your account balance your risk your stop-loss then you're pair so guys this is quite a quick one but uh hopefully you guys took some value and it kind of clears things up about risk management and you were sort of able to see it uh how i sort of go about the thought process of plugging in trades et cetera et cetera and how i use the risk to reward tool so if you enjoyed the video then please give it a thumbs up if you guys want to watch a video on how i was able to manage fomo uh fear of missing out in the markets whilst trading then uh definitely go check it out otherwise i'll see you in the next video thank you for watching [Music] you

Channel: HANNAH FOREX

Views: 58,994

Keywords: forex trading, forex, forex trader, lot sizing, forex lot sizing, hannahforex, forex trading risk management

Id: LPLD-YBbEDk

Length: 10min 1sec (601 seconds)

Published: Wed Oct 28 2020