New forex traders are usually advised to use the same position size. This is good for beginners for several reasons. But do seasoned forex traders still keep this habit? Do position sizes grow with experience? Do they change according to the type of the position?
Fixed position size for newbies
New forex traders should trade with the same position size, preferably a small one. For example, 10,000 EUR/USD would be a good start. Keeping the same position size is excellent for documentation and education.
By maintaining a consistent size, as well as a consistent pair and a consistent strategy, the new trader can get used to the market more easily, compare his trades, and learn a lesson at the end of the day.
Changing the position size just adds confusion in this fast market, when they’re busy learning so many things. Less parameters in the equation will help a new trader focus on the important material.
A different story for seasoned traders
For seasoned traders, this isn’t the case. A trader that I know keeps his position size consistent for 6 months, and then re-evaluates the market, his assets and risk, and adjusts his position size. The new position size will accompany him for many months.
Another forex trader has position sizes that vary from 100,000 to 300,000, sometimes depending on his mood at the moment.
When he has high confidence, he risks more money, and when he isn’t sure, the position size is smaller. He usually uses the bigger lots for range trading when the expected profit and loss are small. When he trades breakouts, the position size is smaller but the stop loss and take profit points are bigger.
The exact numbers also depend on the currency pairs in play.
Thinking of a change – test it first
If you’re used to a fixed size, and you consider moving to something else, this habit change will have a stronger impact than you think. It isn’t always easy to adapt yourself to new position sizes.
My advice won’t be surprising for the readers of this blog: Test it with a forex demo account.