Trading is an area where relying only on our intuition can have disastrous consequences. Say, you have a system whose accuracy is 60% and the win/loss ratio is 1.5:1. I’m sure many of us would love to have a system like that.
But did you know how many losing trades in a row must you be prepared to survive, even when your execution is superb and even though your system has a positive edge? And do you know what that (possible, thus expected) losing streak translates to in dollar terms? In other words, what size of account you’d need to trade that system without the risk of ever receiving a margin call even in the worst-case scenario?
There are too many traders out there who do not know the answers to these simple questions. (For which, frankly, there is no excuse.) They’re also the ones who don’t last long in this business.
The good news is you don’t have to be one of them. All you need is a pencil, some paper, and our Position Sizing Calculator. Mindful trading!