2009.05.18 RISK IS NOT THE SAME AS POSITION SIZE!!

[TheRumpledOne]

2009.05.18 RISK IS NOT THE SAME AS POSITION SIZE!!

I think many traders confuse risk with position size.

If you enter a trade with 1 unit. That is NOT your risk. You may feel that you have 1 unit AT RISK but that is NOT your risk.

If you have a 20 point STOP LOSS, then 20 points is your risk. And if you have a 40 point TAKE PROFIT, then 40 points is your reward. In this case, your reward to risk is 2:1.

If you have a $1,000 account and have your STOP LOSS AT $20, then that is a 2% risk of your account. But you can have different position sizes. You could have 1 unit with a 20 point STOP LOSS or you could have 4 units with a 5 point STOP LOSS. The risk is the same.


Does that clear things up?

[theonewayroad]

Thanks TheRumpledOne. Only now it clicked in my head.