Why A Small Position Size Is So Important

Trust me, I’ve made every mistake that can be made when it comes to forex day trading.

I’m starting to learn one thing – the key to success is to use a small position size for every trade (typically 1% of your account).

You won’t believe how hard it is to adhere to this 1% rule.

Sometimes you see a great setup, or you “feel good” about the trade, and you want to risk more than 1%.

Sometimes you get into a string of losses, and you want to risk say 5%-10% on a single trade so that you can quickly get back to breakeven for the day/week.

Don’t do it. Just don’t.

It usually will not end well.

Apart from the fact that a 1% position size helps you protect your capital when you face a string of consecutive losses (i.e. you cannot possibly lose more than 1% per losing trade), I feel the most important aspect of the 1% rule is the mental part of it.

By risking only 1%, you are much less likely to get too emotionally invested in that one trade.

It’s just 1% of your account. The stakes are considered very low.

If you lose it, it’s still fine. It’s not the end of the world. You’ll live.

You will be able to confidently let the trade play out and not do the following things:

• Moving your stop-loss to breakeven too soon. (In fact, with a 1% position size you could even afford to not move your stop-loss to breakeven and let the full trade play out, which might even be more profitable in the long run.)
• Taking your profits too early, before your trade even hits your intended profit target. (How many times have you decided to cash out the entire trade early because you felt the stakes were getting too high?)

Moreover, the best thing about the 1% position size is that you can simply “set and forget” – just set your desired stop-loss and take-profit, and walk away from your computer and let the trades play out naturally.

You don’t have to worry about managing multiple trades (assuming you’re juggling multiple trades simultaneously) by constantly moving stop-losses and taking partial or full profits.

You don’t have to watch every second of the trade play out and agonize over every tick movement.

In other words, once you’ve set the trade parameters, you just simply don’t have to care.

Trust me, it’s far less stressful and taxing this way.

But to each their own.