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Hello guys. In today's video, I will explain how to calculate your position size while trading bitcoin. If you are familiar with any kind of trading, you should know that position sizing is at least as important as your trading strategy.
After I tell you the logic of position sizing and how to calculate it, we will look at a couple of examples. So don’t worry, at the end of the video you will be able to calculate your position size no matter what.
In this video, I will show you how to calculate your position size step-by-step. Position sizing in bitcoin is not different from position sizing in forex-markets or the stock market. After this video, you will easily calculate your position size while trading both, Bitcoin and alt-coins.
There are 4 steps to follow while calculating position size
The first step of position sizing is to decide your total risk per trade. What does it mean? So let’s say that you have 10000 dollars in your account and you decided to risk no more than 2% per trade. That means your maximum loss per trade will be 200 dollars. Of course, some people might be willing to risk more than 2%. Also, some people can be more conservative and they would want to risk only 1% of their account size, per trade. So, the first step of position sizing is to decide your total risk per trade. For example, Let’s say that our account has 10000 dollars of balance, and our total risk is 2% of the account, which equals to 200 dollars.
The second step of position sizing is to decide your stop-loss. You should never take a trade without a stop-loss. Your stop loss point should be based on your technical analysis, regardless of your balance. What I mean is you should decide your stop- loss-point before opening a trade. And after that, you should decide on your position. You should never decide your trade- position-size before deciding your stop-loss point. With that
point of view, you will be more picky while taking a trade and you will lose fewer trades in the long run.
After deciding your stop-loss point, you should calculate your risk per one lot. You can calculate this risk by simply extracting your stop-loss-price from your entry-price. The number you get will be your risk per one Bitcoin.
The last step to find your position size is to, divide your total risk per trade, to risk per one bitcoin. The number you found is the number of bitcoins you should buy.
With using these 4 steps you can calculate your position size in every trade. You can also use an excel sheet as a position size calculator as I do.
Now let’s look at two examples of position sizing with a bitcoin to dollar pair and an alt-coin to bitcoin pair. We will start with the bitcoin to dollar chart.
Okay, let’s see the daily chart on Bitcoin to USDT pair. I will not spend time on technical analysis and open a hypothetical position. Again, I am repeating, it is not a real trade, because, in this video, I am not explaining a trading strategy or an indicator. Let’s say that you see support at 8600 levels. And you open a trade when stochastic RSI indicator gives you a buy-signal at around 8700. Let’s say that you set a target price at 10000 dollars and your stop loss is at 8100 dollars. In another video, we will discuss how to set take-profit and stop-loss prices. But in this video, I just used 2 random prices for this example.
Even if it is a hypothetical trade, we have a nice risk-reward ratio of 2.20.
Remember in our scenario, our maximum risk per trade was 200 dollars, with a balance of 10000 dollars, and 2% risk per trade. And in this trade, our risk for 1 bitcoin is 600 dollars. So if we divide 200, which is our maximum risk per trade, to 600, which is our risk per 1 bitcoin, we will find our right position size which is
1/3 of a bitcoin.
You can calculate your risk per trade by multiplying your total capital with your risk percentage.
And your risk for 1 bitcoin value will be calculated by extracting your stop-loss point from your entry price.
#bitcointrading #positionsizing #tradingpsychology