To find the correct position size is something that traders often forget to use. It is not unusual that many traders are using a random position size for their trades. They decide to use a bigger position if they feel that a trade is more likely to make profit, or they choose to use a smaller position size if the trade feels more likely to be a losing one. Although this may feel safer to do so, this is not the best or most strategic method for determining the size of a position.
Before you enter a trade you have to prepare your position first. These preparations are necessary to protect your portfolio as well as possible. When you have figured out what your entries are, where your take profits are and where your stoploss is placed, the only thing you have to do is calculate how big your position size has to be.
The most important aspect what traders should understand and apply correctly is the stoploss order. These type of orders can not be placed anywhere random. The stoploss order should be placed on a level that gives the trader the needed information in case they are wrong, especially when the market moves in the opposite direction of your setup. If your stoploss order is not placed correct, the order could be activated unintentionally by the market movements. The stoploss order should be placed when the trade is not valid anymore. In that case you want to be out of your position as fast as possible.
In the example below we will set out stoploss at 5% of our purchase price. We set our target at 10% of our purchase price.
Let’s say we have a portfolio of $10.000 and we would like to risk 1% of that portfolio. In other words, the amount we would like to risk in case we will lose the trade is $100.
The desired position size can be calculated by the following formula:
Trade amount = $ Risk / (SL % /100 )
Trade amount = $100 / (5/100 )
Trade amount = $100/0.05 = $2000
A trading journal is a kind of "diary" in which you keep track of your trades. Keeping track of a journal is a decisive factor in whether you will become a consistently profitable trader or not. It does not matter if you are a swing, day or scalp trader. Becoming a successful trader can be a very intensive and challenging objective. Without careful planning and tracking your trading performance, you will move forward without a goal through the markets. A situation that can never end well.
An athlete has a journal to keep track of his diet, weight and strength. Scientists are using a journal to keep track of their latest inventions and results of experiments. A gamer has a journal to record his games and his thought process during the game. And the same applies to traders. They use a trading journal to keep track of all their trades so that they can evaluate them.
A trading journal can be very useful because, in most cases, they have a crucial role in the trade setups of the professional traders. Unfortunately, many inexperienced traders do not know what this is and how to use it in their advantage. Factors such as scheduling trades, tracking current positions and recording all of their emotions that may arise are essential to be aware of when you are building a profitable trading strategy.
Therefore, it is important for a succesful trader to know how to create and how to use a trading journal. Without a proper journal, a trader could easily lose track of both winning and losing positions. Or in the wordt case scenario, they can blow up their entire account.
The fact is that the perfect trader does not exist. No one is only winning without losing once in a while. If you can discover which strategy works best for you and which one does not, it will help you to become a better trader and develop yourself in this. If you have a trading journal, you can look back on your trades and determine which patterns are costing you money. Stop trading this way as soon as possible. When you know how to shift the focus to the patterns that are valid and profitable for you, you can take advantage of this to make more profit.
To get started you can use a spreadsheet to create a journal like Excel, and/or a written document like Word. You will use these to record your exact trades and thoughts at that moment. When you are going to create a written document, you should have a section for each day where you can write down all of your thoughts and ideas. The written document is where a trader unleashes his creativity while his spreadsheet helps measure the profitability of his creativity. Both are very helpful when creating and using a trading journal. If you keep your journal consistently up-to-date, you can eventually evaluate it to improve your trading results to increase your profits.
Next, it is important to know what you want to keep track of. This ensures that your trading journal has the greatest possible impact on your success. You can find many examples of different logs online. Regardless of the template, the spreadsheet must contain columns. These columns can show the following information: start date, end date, symbol (coin), direction (long/short), buy price, sell price, position size, stop loss, take profit, fee, win&loss (P&L), win&loss percentage (P&L%), etc .
Some traders also keep track of the Tradingview links, the timeframe, a screenshots of the setup and all other relevant information.
Among the various trade set-ups, there can be some that will make you lose constantly. So check your trading journal and identify the worst performing setups. Stop trading the setups that will generate you the most of your losses. This simple adjustment will reduce your loss and eventually will increase your net profit.
After you have identified your best trading strategy, you will still make losing trades once in a while. So look through the losers of your best trading strategy and ask yourself: “How can I minimize my losses?” You may be able to limit your losses earlier, use a filter that reduces your loss or avoid trading at a certain time of the day.
- Identify patterns that lead to profitable trades.
Next, you would like to identify your best trading strategy. These are trades that structurally make profits. So look in your trading journal to identify the best setups and then focus on that. You do this if you want to find more trading opportunities, trade on multiple markets, trade on a new timeframe or a combination of these.
Look through your best trade setups and ask yourself, “How can I maximize my winnings?” For example, by scaling up part of your trade and letting the rest run from patterns that lead to winners. If you can do these things, then you are already one of the better traders.
On Binance Academy it is possible to download a free logbook (Excel) and adapt it to your personal preferences.
We at Margin Traders NL advise inexperienced traders to use paper trading first. Paper trades are made with fictive money in order to test a strategy and prevent actual loss. If you want to start trading, we recommend purchasing a course on technical analysis and make as many paper trades as possible. Try to become one with the graphs. Make trades, gain knowledge and experience to learn from your trades and their setup. This also applies to experienced traders: keep a trading journal! Use a journal and learn from your own mistakes and successes!
We are fully aware of the fact that we push you to the limit to fully understand risk management.
In our briefings, here in the channels and also in our Trading Room. But there is even more!
Have you ever heard of emotional risk management?
Primarily it is about recognising and understanding your own responses to psychological threats and how to manage this.
Day traders must control their emotions all the time, actually, they should have no emotions at all. The slightest lapse in controlling your emotions will completely ruin your hard-earned profits.
For instance, after having several losses in a trading session you are afraid of ending up having a losing day. This fear spurs you to over-leverage and blow up your trading account with a single trade.
How many times have you blown up your trading account because you lost control of your emotions by revenge trades, high leveraged trades, etc.
“Markets are going up at the moment so forget about risk management and get yourself over-exposed in the markets”. Most of our Margin Traders understand that trading is a game based on probabilities instead of expectations. We know that we should control our emotions and stay detached from the results of each individual trade.
We always say: don’t marry your position. Take profit at targets, use a stoploss and accept the risk. Do not be affected by fear and greed but try to stay in the “trading zone”.
While these clear statements are good reminders, they are of little practical value yet. This is because they do not show you the exact action you need to take when you are actually trading.
Day trading requires full focus. The day trading setups are volatile often so it is crucial for day traders to know exactly how to act to control their emotions while trading.
Now, the main question is: What can you do to control your emotions?
There barely is a bigger factor that causes a greater surge of emotions than your profit and loss figure. To many traders, the profit and loss figure is an expression of their self-worth. Sticking to your risk reward plan prevents this. If this is all set in your trade, there is absolutely no need to sneekpeek at the figures all the time on your cellphone.
Something that might help as well is the following thought: When you are in a winning trade, you may compound and enlarge your position. So why not take a break when you experience a losing streak? Take a break, recap your trading journal, recap your trading rules and trade a bit lighter (smaller position size) to build some confidence. Because confidence is what you need.
Control over your emotions does not give you a trading edge. This is because your trading edge depends on your trading method. However, you need to master your emotions for long-term trading success.
Learning to fully control your emotions requires persistence, the correct mindset and the discipline to apply those factors at any given time. Determine your boundry by designing a way of trading that protects you from your emotions and stick to that system will help you to protect your portfolio.
Finally we can only advice you once more: read about this subject as much as possible. There are very good books written by experienced traders like Mark Douglas and good articles like via the following link: https://capital.com/emotions-in-trading
This image will help you to enjoy your profits even more and to accept you losses even better.
Team Margin Traders
For several months now, DeFi is a term which can no longer be ignored. You read about DeFi everywhere, but what does it mean and what does it stand for? DeFi is directly related to financial smart contracts, decentralised applications (DAapps), and protocols that are unique to Ethereum (ETH), the second-largest cryptocurrency after Bitcoin (BTC). Some of the better known DeFi-platforms include decentralised stock markets, loan markets and branded physical assets, such as gold. It even expanded with other financial services, like derivatives, payment networks and insurances.
As a beginner in the world of crypto, it can presumably feel like you are reading a foreign language. We will explain the most significant elements, so that the remainder of the blog is easier to understand.
These constitute the core that makes Ethereum unique. They facilitate the operation of applications or scrips on the network to create digital resources. That way, complex irrevocable conventions, such as payments or transfers, will be authorised – without the need for an “intermediary”, which would normally be a bank or other established financial institution.
DApp is a software application that operates on a distributed peer-to-peer network, as opposed to being hosted on a centralised server. It could be like any app that you open on a web browser or smartphone, except that it operates on a decentralised network, like Ethereum.
A decentralised stock market is like an online trading platform, such as eToro, apart from the fact that it is run by resourceful contracts, with the help of the Ethereum-blockchain. Unlike the traditional assets, it also allows you to trade cryptocurrency coins. The most important advantage of Dex is that, because it is centralised, it greatly reduces the potential risk of external hacks or internal fraud.
While the potential use cases for DeFi are huge, it is an emerging technology that is still in its development phase. Outside of the Dexs, DeFi’s main financial service offered is decentralized lending and borrow use case. This allows users to invest in digital assets to earn interest as well as borrow stablecoins pegged by the US dollar. In a way, it is like the blockchain version of fintech peer-to-peer lenders.
DeFi certainly has the potential to evolve on how global financial services will operate in the future. However, it is important to remember that blockchains and decentralization are not a solution for everything. Identifiying good use cases that can really take afvantage of this emerging technology could be the catalyst for mainstream adoption.
On Coinmarketcap.com is a full page devoted to DeFi tokens. At the moment there are 100 different tokens in circulation.
Team Margin Traders
When trading with leverage, borrowed money is used to increase one’s trading position. The result is you will have a larger position than what would be available through your own portfolio. Exchanges allow the use of leverage trading whereby the exchange themself will provide the borrowed funds. Please beware, trading with the use of leverage can result in an increase in both profits and losses.
Leverage, also called risk level, is therefore a temporary loan that is provided by the exchange to the trader. It allows the trader to opan a position larger than the invested capital. The leverage is presented in the form of a multiplier (x3 - x5 - x10 – cross leverage) which indicates how much more than the invested amount of a position is worth.
In the case of cryptocurrencies, money is usuallt borrowed from the crypto-exchange itself. Crypto trading offers high leverage trading, and even cross leverage. With these kind of trades the trader is capable of building and controlling a huge amount of money with just an initial margin.
Leverage trading is offered on various crypto exchanges such as: Binance, Bitmex, Kraken and Bybit. These exchanges themselves provide a lot of information about leverage trading in their FAQ’s, or via their own educational program. At Margin Traders we also offer our customers the possibility to trade with leverage. Before we started leverage trading ourselves, we practiced a lot with “paper trading” and traded without real money first. The reason for this is to emphasize once again that both the gains and losses can be enormous, and in the worst case you can lose your portfolio in no time.
You do not have to worry about leverage trading once you have learned how it works and how to apply it correct. With proper riskmanagement it is possible to use leverage successfully and profitably. Leverage must, on the other hand, be handled very carefully. Once you master this you do not have to worry about your own accumulated capital anymore.
There are several advantages to leverage trading, so many that it has become a popular concept in the world of crypto trading.
It minimizes the capital that the trader has to invest. Instead of paying the full price for a currency, the trader only has to pay a small part of it. This part is also known as the margin.
Some cryptocurrencies are relatively cheap, which means that almost any trader can trade them easily. However, some are considered more prestigious and based on their traded frequency and other factors, they are more expensive, such as BitcoinCash (BCH). Instead of investing large amounts of money to participate in their markets, one can take advantage of trading with leverage to enjoy the fluctuations in the price of these cryptocurrencies.
Although trading with leverage or margin trades involves less capital, this also increases the risk of loss. Someone can gain much more than their initial investment, but losses can occur on the same scale. It is important to keep track of open positions and apply a stoploss to avoid major losses.
When we decide to open a trading position, we first need to know the applied margin, set a target and define the maximum loss with a stoploss order that will automatically sell our position to avoid even further losses.
Choosing the right leverage depends on several factors such as your ability to manage your risk and your chosen trading strategy. If you trade in the short term, your profit expectations are not very high. In scalping, traders’ profit targets are tight. To maximize their profits it is necessary to use a large leverage. However, when the size of your investment is large it is recommended to use a small leverage to ensure that opposing market movements will not make you lose all your invested money. It is possible to define very simple risk management rules to avoid being surprised by the leverage effect.
The increase the size of your portfolio due to the effect of leverage will allow you to multiply both potential gains and potential losses. If you no longer have any capital available, no new position can be opened.
By using smaller amounts with leverage you also have the option of setting a wider but reasonable stoploss to avoid a higher loss. A highly leveraged trade can quickly drain your portfolio if it turns against you. Keep in mind that the leverage is completely flexible and adaptable to the needs of each trader.
Try leveraged trading with “paper trading” first or without real money and practice a lot. Using leverage carries a higher risk because leverage increases both profit and loss. If you use leverage on a trade and the market turns against you, your loss will be greater than if the leverage had not been applied at all.
Our team often trades Bitcoin on Daily/Short term base based on the Value Area’s. We read them in Trading View and Exo charts, and we often show the Value Area on the charts we share with you in our Briefings and Daily updates.
The Value Area is a range of prices where most trading volume took place on the prior trading day. In specific, this area is the range where 70% of the prior day’s volume happened.
Why 70%? Because 70% is a rough approximation of one standard deviation on either side of the mean. In other words, the value area levels highlight where 70% of the entire volume occurred during a particular trading session.
The value area is approximately one standard deviation above and below the average highest volume price. With this knowledge, there are specific probabilities of market behavior you can understand to digest the value area. The value area gives an idea of where the smart money is trading and where the institutions are guiding the market. From this data, you can derive intra-day strategies that capitalize on market behavior.
The Volume Profile value is constructed of 3 parts:
The Point of Control Trading Strategy (POC) shows the single price level at which the most amount of volume was traded. While the value area low shows the lowest price level within the value area and the value area high shows the highest price level within the value area.
The 80% Rule:
The 80% Rule states that when the market opens or moves above or below the value area but then returns to the value area twice for 2 30-minute periods, there is an 80% chance of filling the value area.
If the market opens above the value area and does not return to the value area this is a bullish signal. However, if the market opens above the value area and returns to the value area this is bearish.
Every trade has a so-called “Risk”. Of course we want to win every trade but unfortunately this is not going to happen in the world of trading. Determining and calculating risk is therefore important, whether or not the most important and is underestimated and not understood by many.
Risk is the maximum amount that we want to lose per trade. This is a choice for everyone. The better your trades have been seen over the past 100 trades, the more risk you can take if you consistently make a profit. 2% is common. Are you new or not always trading profitably 0.5% or 1% risk is a better idea.
The risk you take on 1 trade is the loss you may make on your entire balance. You will have to pass this on, we will come back to this later in this document. It is also important to use the same risk on your trades as much as possible in order to end the line as well as possible. See in the table below what happens on an amount of $ 10k with regard to risk.
You can already see what will happen to your portfolio if you take more or less risk. Of course, more risk means more profit. If you make losing trades, you can also see how quickly your account balance declines if you increase your risk by a few%. Where many people are mistaken is the
misery that you incur if you take too much risk, because loss is simply difficult to make up for.
Realize that with a 50% loss on a trade, you don't have to take in 50% profit to make up for it! To make up for 50% loss, your next trade must be 100% profit. A second factor in this is that you are always 100% in your trade towards your stop loss, so you make a 50% loss on your entire investment. Suppose you make 100% profit on your next trade and in the perfect world you only have 1 TP and get hit, your loss is good. However, you usually work with multiple entries and TPs and will therefore never make 100% profit on your entire position. As we mentioned earlier, making up for a loss can sometimes be a daunting task if you take too much risk and move and / or remove your stop loss.
You now understand that determining the risk is extremely important. We also recommend that everyone do this. Are you new? Are you not consistently making a profit on all your trades? Take less risk. Risking a 0.5% or 1% per trade is the max. REAL! And yes, you make less profit if you take less risk. But take a closer look at the tables above. Do you really make less profit if you take less risk? How much risk should you take after that? How many good trades do you have to make to straighten things out? After that 5% or 10% risk, that "oh so great trade" that has gone wrong, use less risk. Taking 10x or 5x less risk, back to 1% ... That will be a one-year plan. Or take more risk to make your trade right? Take a good look at the tables above. Determine your risk and let's agree together that this is never more than 2%. What the risk is and why this is so important should now be clear. How are we going to apply this in practice? The risk or risk has nothing to do with the location of your stop loss. You determine your entry, stop loss and only then the targets in advance. We will explain this by means of examples. The example will be using a Binance trade without leverage.
Portfolio: 1 Bitcoin
Trade XRP / BTC
Risk 2% portfolio
The trade as above gives us a 3% loss on hitting a stop loss. The trade as above gives us 6% profit when hit take profit. We don't want to lose 3% when hitting the stop loss because we want to risk a maximum of 2% on our trade so we have to count back. The question now is: With how much bitcoin can we buy XRP so that we risk a maximum of 2% if hit the stoploss? (2% risk trade)
1 Divide the number of bitcoin portfolio by 100 X “risk” = Y
2 Stop loss of your trade setup / 100 = X
3 Risk / SL = Position size in BTC
* Y / X = Position size in btc
1: I have 1 Bitcoin. I divide this by 100 x Risk. 1 / 100x2 = 0.02 BTC
2: My stop loss is 3% away from my entry for this trade. 3/100 = 0.03
3: I divide my risk in relation to my portfolio -> 0.02 by my stop loss in decimals 0.03.
So 0.02 / 0.03 = 0.66 BTC
Now it is clear what I can use in this trade. Namely 0.66 Bitcoin. As my stop loss hitting 3% on this trade it costs me -> 0.66 / 100 x 3 = 0.02 BTC! So look back to above. We want to risk 2% of our total if we hit a stop loss. 2% of 1 btc = 0.02 If we hit TP with a risk / reward ratio of 1: 2 -> 3% loss 6% tp, the profit in this To be 0.04. 0.66 / 100 x 6% tp = 0.04. Risk / reward story in a nutshell.
Portfolio: 1 bitcoin
Trade XRP / M20
Risk 2% portfolio
Because we use a leverage of 10x here, this should be viewed differently. The trade as above gives us a 30% loss on hitting a stop loss. The trade as above gives us a 60% profit when hit take profit.
However, when we hit stop loss, we want to lose a maximum of 2% of our portfolio. For this you use the same calculation as in example 2. You will therefore have a loss of 20% Hatch. By now only using 10% amount of your portfolio, the loss is not 20% only 20% / 10 = 2%
You can use the calculator in Bybit for this. There are also excell sheets on the internet that help you calculate your position size. Always check at “cost” in Bybit whether this is correct. We hope you now understand how important the risk is per trade. So remember. It risk what you take (maximum loss) is predetermined and has nothing to do with the place of your stop loss. You calculate your position size based on the stop loss and lever. This will often differ if you calculate this precisely per trade. This way you will be the best at the bottom of the line because the risk per trade is always the same.
The Risk & Position Size calculator is available on our website in your member portal.
If you have additional questions, you can always send them to our team.