2009.05.18 RISK IS NOT THE SAME AS POSITION SIZE!!
Posted: Mon May 18, 2009 6:21 pm
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?
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?