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Calculating the Position Size Once we
have determined the quality of the

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it is time to assign a risk percentage
to the size of our account.

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Since we do not know what the result of
the next trade will be, and with the

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basic premise of preserving capital in
mind, we must calculate the optimal size

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of each position so we risk just the
right amount to maximize the potential

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profit, while keeping the risk under
control.

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Particularly important is the premise
that we do not know what the result of

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next trade will be.

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Therefore, the amount we risk should not
depend on whether the previous trade

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was a winning or losing one.

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Each trade is independent.

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Only the capital we have at that moment
should be taken into account when taking

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any decisions.

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We often hear that we shouldn't risk
more than 2, 3, or 4 % of the capital in

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our account, but we are never told why,
and for this reason, many traders assume

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that it is too low an amount, which
leads them to leverage more and

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lose capital. Well, in this section, We
are going to look at the statistical

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logic of why you should not risk, in my
point of view, more than 2 % of the

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account, and why, preferably, you should
only risk 1%. To analyze this logic, we

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are going to look at the concepts of
drawdown, losing streaks, and the

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implications of the percentage that is
risked.

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A drawdown is simply a peak -to -cross
decline of the capital curve when we

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suffer a losing streak.

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For example, this is my yield curve for
the last three years.

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As we can see, I have gone through three
significant drawdowns, the largest of

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which represents a drop of 15 .42 % of
my total account and covering 87 days

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from the startup until a new maximum
high.

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Understanding this concept is important
in order to reinforce the idea that risk

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management is a vital element in any
trading system.

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Meanwhile, there is also the concept of
losing streaks. This is very simple.

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and yet there are many people who choose
not to understand it.

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Due to the nature of markets and our
potential for failed decision -making,

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is excruciatingly easy to suffer five or
more losing trades in a row, one loss

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after another.

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Really, really easy. And if we don't
manage the risk properly, we may find

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ourselves in a situation from which it
is very hard to recover.

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If you have been in the markets for a
long time, you will have already

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experienced this.

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And if you have not suffered it yet, I
guarantee that it's only a matter of

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time.

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Optimal risk management requires a
statistical mindset and the use of

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data to verify these concepts.

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Where am I going with all this?

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This table shows what percentage of
profit we need in order to recover from

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particular loss.

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If we lose 10 % of the capital in the
account, we need to obtain a return of

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.1 % to reach the baseline prior to the
drawdown.

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But of course, this becomes more
difficult as the loss percentage

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For example, to recover from a 50 %
loss, we would need to double the amount

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the account. In other words, make 100 %
of the capital that we had at that

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point. No easy task.

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As we have seen, recovering from a loss
of 50 % of our capital would mean having

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to double the account.

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Almost certainly impossible.

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since suffering that level of loss
implies that you are likely following a

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trading strategy that really isn't
exploiting an advantage. In other words,

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losing strategy in the long term.

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So let's say that a maximum loss that a
system can suffer, which is potentially

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recoverable, would be one with a
drawdown of 20 or up to 30%. Now, how

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reach those drawdown levels depending on
the risk we assume per trade?

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This is what we see in the following
tables.

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By risking 1 % of our capital per trade,
we can allow ourselves a losing streak

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of 23 trades to reach a drawdown of 20
.6 % at that point.

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Easy to understand, right?

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But what if we risk 2 %?

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Well, in that case, we would have
already reached this percentage after

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trades. And what if we risk 5 % per
trade?

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Well, with only 5 losing trades, we
would have already exceeded the

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limit. Herein lies the importance of
maintaining a low risk per trade

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percentage. And I repeat, suffering 5
consecutive losing trades is very easy.

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So, be careful with the risk percentage
you decide to apply.

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Now that we are clear about why we
should only risk 1 or 2 % of our

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let's look at how we determine the
amount that corresponds to this

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To do this, we will continue to work
with the TradingView platform.

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We have already seen how useful it is
during this course.

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But one of the most powerful aspects of
the platform is its easy -to -use

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position management feature.

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I have personally tried many platforms
in the past and none have had anything

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useful as this tool.

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To access it, simply go to the side menu
on the left and select the item which

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gives us the following dropdown.

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Depending on what we want to do, buy or
sell, we will select a long position or

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short position.

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Obviously, you will need to have a
broker account connected to TradingView.

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In my case, I use the broker
TradeStation.

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I have also tried other integrations
with Interactive Brokers and AMP, and it

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has always worked perfectly.

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Then, click on the chart and the
following interface will appear in red

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green. Then, you simply have to move the
anchor points to precisely position the

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entry price, the stop loss, and the take
profit.

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Let's imagine that we are observing a
small reaccumulation structure and that

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this good candlestick appears, which
breaks through the previous lows and

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generates a potential spring.

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We like the look of this opportunity and
we want to take it.

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We would set the entry order just above
the trigger candlestick, which would be

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a buy stop order, to be executed at the
point where the candlestick is broken.

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We would also establish the stop loss
order below the same trigger

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and finally we would place the take
profit in the first large liquidity zone

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that we can see to the left in that
previous maximum pivot once we have

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our setup we need to right click
somewhere on this interface and click

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option to create a new order and the
position configuration box is

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filled in in this section we can select
the percentage that we are going to risk

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in this trade as we can see i have put
two percent of my total account which

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would represent a risk in monetary units
of $467 .16 and would establish a total

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position size of 687 units.

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This box is just great. If you modify
any of these three parameters, the

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the monetary risk, or the percentage,
the other two elements are automatically

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recalculated, which makes things much
easier.

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In the aforementioned interface, there
is another item of information that

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be worth looking at, which is the risk
-reward ratio.

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As we can see, this trade would present
a ratio of 1 to 3.

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That means it would have obtained three
times the risk assumed.

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As we know, the risk is represented by
the distance between the entry point and

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the stop loss, while the profit is the
distance between the entry point and the

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TP.

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It also offers us the possibility of not
establishing the take profit or stop

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loss level from the start. Simply by
removing the selection, it would

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from the chart and the order would not
be launched.

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As with every platform, I recommend you
spend some time familiarizing yourself

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with it. Set up a demo account and test
different order setting scenarios so

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that you can control the order launch,
modification, and deletion protocol at

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all times.

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If you are using a different platform
that does not have this tool, you can

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always do the calculations manually or
better yet, use an external tool.

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There are a multitude of tools available
on the internet that facilitate the

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task of calculating the position size.

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Here are three examples for Forex,
Futures, and Stocks.

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Although, if you can, my recommendation,
regardless of whether it is on

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TradingView or on another platform, is
that for convenience, you use a tool

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the one we have just seen that's
integrated within the same platform.