Lot size decision

Hi all,

What's the best way to decide lot size exactly, suppose i do have 25,000 USD with risk limit of 35% of my total funds as net risk, my question is how can i distribute this risk across my trades and decide lot size on every entries

I'm not exactly sure what you mean by "risk limit" but I'm assuming you mean "maximum acceptable drawdown"........

If you want to have a probabilistic model for the long-term then I must mention that you need a system/strategy that has relatively strict, repeatable rules so that you can gather hard data with regards to win/loss %, profit factor, etc; it goes without saying that the system needs to be profitable, only then does the win/loss % matter.......

With all of that out of the way, in order to calibrate your position-size most optimally, what you'll need to do is to measure the probability of your "most likely" losing-streak based on your win/loss% Here's a calculator that you may find useful - http://www.forexfactory.com/showthre...53#post5315353

Now, as I don't know your win/loss %, I'll just take a random example with a strategy/system with a win/loss % of 50%, which can have the probability of "most likely" losing-streak of anywhere between 20-30 consecutive losses depending on the sample-size (could be more if one intends to scalp for many years with the same strategy) but for example's sake we'll use 25 as the "most likely" losing-streak with $25000 capital with 35% of maximum acceptable drawdown -

Ok, so first we need the % that can be risked per trade = (maximum acceptable drawdown)/(most likely losing-streak) = 35/25 = 1.4
Now, 1.4% of $25000 = $350

Now, let's say one takes a positional-trade & the SL is 100 pips, in that case - $350/100 = $3.5
So that $3.5 is the pip-value for that trade, as we know for example EURUSD has a pip-value of $1 per minilot so it means that in this case, one should have a position-size of 3.5 minilots (35 microlots)

Another example where let's say one takes a day-trade with an SL of 25 pips, in that case - $350/25 = $14
So accordingly, one can trade 14 minilots........

Remember, the "most likely" losing-streak is just that - "most likely" - but it's possible to have a longer losing-streak than expected - for example, we can take all the precautions we want when crossing a road but it merely minimizes but it does NOT completely eliminate the possibility of some vehicle hitting & killing us - same is true with calculating the probability of "most likely" losing-streaks........so if you want to be even more conservative then you can take your most likely losing-streak & multiply it by 1.5 or 2 but obviously, reducing risk-potential also means recuding profit-potential, so it's about finding a balance that one is comfortable with........

Thanks for valuable inputs and pointing me in right direction to start up with what i am wanted basically and i am prepared and aware there is no certainty in trading markets