Position sizing

In trading, we always want to increase returns and reduce risk, so we need to understand how much money to put in our trades in order to have a good risk/reward balance.

Figure 6.2 – Position sizing

There are various position sizing methods such as YOLO (no method); (addictive) gambling, also called emotion-driven trading; fixed-size (0.05 BTC for each trade); fixed-value ($1,000 for each trade); a fixed amount of equity; a percent of equity; percent volatility; the Kelly formula; the max drawdown method; fixed risk/fixed fractional; the profit-risk method; margin target; leverage target; optimal f; and more.

I’m going to present to you two of those methods. I’ve used both at various times.

Method 1 – percent of equity (variation)

With the percent of equity method, you make sure that the value of your position is equal to your chosen percent of account equity. I’ve fine-tuned this method to crypto...