Disclaimer: The information's contained in this explanation is the result of my understanding of Position Size and may contain some errors. Search and confirm about it.
Table of contents
1. Introduction
2. Why is that important?
3. What is position size?
4. How to determine account risk?
5. How to calculate position size?
6. Hash function properties
7. Hash function & Mining
Introduction
Not knowing how to manage risk leads will leads you to lose your money, no matter your technical knowledge and the size of your portfolio, so you find, for example, that a person has about $ 1,000 in his account, got an entry confirmation and did all the technical analyzes to ensure the opportunity to make profits if he buying or selling at that point, but there is still One important thing to do. He has to calculate the size of the position he will take.
Ignoring the right risk management practice will result in a huge loss in a short time. You will lose all years of hard work.
Why is that important?
Making emotional decisions is a disaster when you want to trade, when it comes to risks, you must avoid emotions.
A lot of people understand "risk management" as trying to fit stop loss orders so that they are too narrow to be too risky. This is a totally wrong strategy.
You will need to think about things like: How much capital can you take? The goal of the investment? Return on investment that achieves zero loss? But we will talk about a basic measure that many neglect, which is the size of your positions for individual deals.
What is position size?
position size allows traders to have a fixed amount of risk per deal regardless of the size or the smallness of the market movement
position size: Risk Amount / Distance to stop loss.
Risk amount: Amount (normally USD) that you going to risk (1% rule.)
Stop loss: price level that you think your trade is invalidated in which you exit to prevent losses.
Distance to Stop loss: (Entry price - Stop loss price) / Entry price
Source: https://www.tradingview.com/chart/BTCUSD/BB3JTyox-How-to-calculate-position-size/
How to determine account risk?
it is determination of the percentage of capital that can be risked in one transaction involves.
It is better to give the same risks in all deals and give them all equal opportunities but if you are very confident in the analysis, increase the risks provided that it does not exceed 10% and that you do not use emotions.
The 2% rule:
It is an appropriate strategy for highly volatile markets that need to define long-term positions.
If you are active, you may use The 1% rule.
There is no one-size-fits-all approach to determining your stop loss. Therefore, you will have to start with fixed rates and then decide for yourself the strategy that best suits your style.
How to calculate position size?
Let's say we have an account with $ 10,000. We have demonstrated that we do not risk more than 1% in one trade and after analyzing the market we decided that our business idea was nullified by 5%:
Account size : $ 10,000
Account risk : 1%
Invalidation point : 5%
position size = account size x account risk / invalidation point = $10,000 x 0.01 / 0.05 = $2000
Thus we can mitigate the impact of a price collapse.
It is not related to strategy but to determining the levels of risk you want to face.
No we want to buy BTC at $8,000 and our SopLimit below key support level at $7,000 .
the Distance to SL would be ($8,000 - $7,000) / $8,000 = 0.125.
Now lets say our risk amount to be $100 per trade, the Position size in this example is thus equal to $100 / 0.125 = $800
Sources
Code:
https://www.youtube.com/watch?v=RE9tk78ALd0
https://tradingcryptocourse.com/course/position-size-calculator/
https://medium.com/@cryptoaims/how-to-calculate-position-size-for-your-trade-free-bitmex-calculator-b3dc0522d14
https://www.tradingview.com/chart/BTCUSD/BB3JTyox-How-to-calculate-position-size/
https://academy.binance.com/economics/how-to-calculate-position-size-in-trading