How many lots should you trade? A 3-step position size formula

How many lots should you trade? Most people just guess.

Here's a three step way to get the exact number.

Step one: dollar risk. Account times risk percent.

Say 5,000 dollars, 1 percent. That's 50 dollars.

Step two: measure the stop distance on the chart.

On this gold chart: buy at 4343, stop at 4335, under the low. That's 8 dollars.

Step three: lots equal dollar risk, divided by stop distance times the value of a 1 dollar move.

For gold, 1 standard lot: price moves 1 dollar, that's 100 dollars.

So 50, divided by 8 times 100. That's 50 over 800, 0.0625 lots.

Round down, never up. 0.06 lots.

Check: 0.06 lots times 8 dollars times 100 is 48 dollars. Under your 50.

Stop twice as wide, 16 dollars? 50 over 1,600 is about 0.03 lots.

Same 50 dollar risk. Only the lot size changes.

Save this. Risk dollars, then stop distance, then divide. Round down.

Your turn. How do you pick your lot size now? Formula, same every time, or guess? Comment below.

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