When taking the trade entry, the position size calculation must be done as well. The common mistake here is that a trader will choose the same contract size for all trades. This convenient shortcut can lead to dramatic differences in relative position size. Let me explain.
In the Forex, Crypto, or Futures market, different instruments have different point values. In Forex, differences in currency values also impact position-sizing decisions. A trader who uses the same absolute lot or contract number for all trades gives different trades different weights. The higher the point value or the more expensive the currency, the fewer contracts the trader has to buy/sell in order to achieve the same risk level.
Typically, traders should choose a percentage-based risk level for their trades. Most trading books suggest a position size per trade of somewhere between 0.5% and 2% per trade. This means that with a position size of 1% on a $10.000 trading account, a loss should not exceed $100.
This sounds more complicated than it is and calculating the right position size is straightforward: In order to calculate the correct position size for the trade, all the trader needs is the distance between the entry price and the stop loss level. A quick Google search for position size calculators will provide dozens of great online calculators. A good calculator is the one from BabyPips: Position Size Calculator – BabyPips.com
A few years ago, I also recorded a step-by-step video on how to do position sizing the right way: Position Size in MetaTrader 4 – get it RIGHT! – YouTube
There is one important takeaway when it comes to position sizing rules in your trading plan:
You should choose a percentage risk level that you apply to all trades going forward. Whatever this number is for you, you must use this risk level for all trades. The more you deviate from your risk level, the more noise and inconsistencies you have in your trading results.