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There have been many arguments pro and con regarding the question of increasing the size of ones trades when you are either in an equity uptrend or an equity downtrend.
Some of course, don’t wish to vary from a fixed contract per trade position. They want to start out with either one or two contracts per trade and continue in that direction forever.
Other traders want to increase the size of their trades but are not quite sure how to accomplish this with any sort of consistency or stability.
The main thing to understand is that when one increases the size of a trade, that you maintain the same risk% factor with each trade. In other words, if you trade 2 contracts per trade to begin, with a risk% of 2-4% per contract, and you increase your trade size to 4 contracts, you don’t want to raise your risk% to more than 2-4% of your trading capital. This also applies when you get to the point of trading 50 contracts per trade. You never want to change your 2-4% risk to capital to a higher %.
Maintaining the same risk% to each trade guarantees that you can withstand many drawdowns and will always have enough in reserve to trade another day.
But you have to be disciplined and follow this same procedure with all trades. To accomplish this task, you have to have some means to determine how you are going to determine your risk% in relation to your trading capital (your float), and then convert that information into the stop-loss amount and the proper number of contracts per trade. It’s very difficult to accomplish this without some sort of calculator. You need a calculator that is built into your trading spreadsheet and which automatically determines the proper number of contracts to trade after each trade input. It will vary according to the change in your accumulative float. The more you make, the more you trade. The less you make, the less you trade. But your risk% will never vary from the 2-4%, no matter how may contracts you trade.
This money management approach is probably more valuable than whatever trading system you are using. And if you are disciplined and do not vary from following the calculator results, you are further ahead than 95% of the traders today. Most traders don’t even have a trading plan, let alone a money management set of rules. Hard to believe!
If you are going to treat your trading as a business, you absolutely have to inaugurate this money management approach into your trading plan.
There is a FREE “Position Sizing Calculator” on the first page of my web site. Try it out!
Thanks for reading and good luck in your trading.
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