๐งต Have you ever been scared to take a trade because the market is too volatile? Chances are you're not sizing properly then.
I'm going to show you a simple way to correct this problem:
I'm going to show you a simple way to correct this problem:
A wise man once said: when volatility increases, scale down your position size, you can handle the price swings better, and make the same amount of money as you normally would.
How do we gauge relative volatility in the markets? An easy way is by using the "average true range." Almost every charting platform will have the ATR indicator and it will update dynamically. Currently, the NASDAQ has an ATR of approximately 512 points per day!
Once we know the current ATR (volatility), we can then use a simple formula to help gauge our position size and/or risk.
We simply convert the ATR into ticks based on the product being traded.
We simply convert the ATR into ticks based on the product being traded.
Assume you're trading with a $25K account with a max risk of 2% per trade:
Let's also assume you're trading on a 30m $ES_F chart and the ATR is 50 points. We simply convert the ATR into ticks: 50x4=200.
Let's also assume you're trading on a 30m $ES_F chart and the ATR is 50 points. We simply convert the ATR into ticks: 50x4=200.
Most traders use an ATR multiple of 2X-3X for their position sizing and risk profile. With a little math, we divide our Max Risk by our ATR Tick conversion: $500 * (2*200) = 1.25 contracts.
Once you've decided on your risk appetite, you know an approximate contract sizing to pick for your position. You can use this google sheet to input your own data and easily calculate for yourself. Enjoy!
docs.google.com docs.google.com
docs.google.com docs.google.com
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