![]() ![]() This may seem very trivial to you at this point. For this reason, we will address the technique of estimating equity capital first and then proceed to learn position sizing techniques.Įquity capital is the basically the amount of money you have in your trading account based on which you decide how much capital to deploy in a trade. Now, irrespective of which position sizing technique you will follow, at some point the technique will require you to estimate your equity capital. Of course, I will discuss few position sizing techniques soon. ![]() You as a trader need to experiment and figure out what works for you. Needless to say, there are many different ways to position size, which by the way, also means (unfortunately) that there is no single guided technique to position size. You have decided to invest 5000 a trade based on a position sizing rule or a strategy. Here 5000 is the exposure to a trade and 10000 is the equity capital. For example, if the capital is Rs.100,000/-, then they will not risk more Rs.5000/- on any single trade. The 5% rule does not permit you to risk more than 5% of the capital on a given trade. One classic position sizing strategy which most people employ is the standard 5% rule. Position sizing is all about answering how much capital you will expose to a particular trade given that you have ‘x’ amount of trading capital. In this chapter, we will take that discussion forward and explore ways to position size.Ī quick recap of sorts before we proceed. ![]() ![]() Position sizing technique helps you identify how much of your equity capital has to be exposed for a given trade. The last chapter we laid down few key thoughts on position sizing and with that, I guess it is amply clear as to why one has to incorporate position sizing at the core of every trading strategy. ![]()
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