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A lesson on why position sizing is one of the most important aspects to consider when trading the stock, futures and forex markets.

So far in the lessons leading up to this one we have covered some of the different methods traders use to pick their entry points, as well as some of the different methods which traders use to set their exit points. In this lesson we are going to look at the factor which ties all of the above together and allows a trader the greatest control over their returns: Position Sizing.

While position sizing is one of the Key components of successful trading, like many of the other things we have covered, it is often overlooked as an unimportant aspect of trading. What successful traders know however is that once the psychology of trading is mastered and a trader has developed a sound strategy for picking their entry and exit points, it is the method they use to determine the size of the positions they trade that is the final factor which will lead to their success or failure.

To help illustrate this lets say that three traders are each given $10,000 and the same EUR/USD Mini Forex strategy to trade which has a win rate of 60% (makes a profit on 6 out of 10 trades) and makes an average profit on winning trades over the long term of 100 Points. On the losing side, this same system has a lose rate of 40% (takes a loss on 4 out of 10 trades) and takes an average loss on those trades of 90 points.

So here we have a trading strategy that has more winning trades on average than it does losing trades, as well as a strategy that when it does lose it loses less than what it does when it wins. I think most traders including myself would take that system any day of the week.

So we give these traders each this system and tell them to come back to us after 10 trades and show their results. As the system is the same for all traders, when they bring us back the trading results of their systems the entry points and exit points for each trade is going to be the same, leaving them only the position size as the factor that they can tweak.

As they are trading mini EUR/USD forex contracts the value of a 1 point move is $1 per contract traded. With this in mind after 10 trades the system produces the following results:

1. Intro to Technical Analysis
2. Introduction to Dow Theory
3. Second 3 Tenets of Dow Theory
4. How to Read Stock Charts
5. How to Trade Support and Resistance
6. Multi Time Frame Analysis
7. Introduction to the Double Top and Double Bottom Charting Pattern
8. How to Trade Double Tops Like a Pro
9. How to Trade the Head and Shoulders Pattern Part 1
10. How to Trade the Head and Shoulders Pattern Part 2
11. How to Trade the Wedge Chart Pattern Like a Pro Part 1
12. How to Trade the Wedge Chart Pattern Like a Pro Part 2
13. How to Trade the Flag/Pennant Patterns Like a Pro Part 1
14. How to Trade the Flag/Pennant Patterns Like a Pro Part 2
15. How to Trade Triangle Chart Patterns Like a Pro Part 1
16. How to Trade Triangle Chart Patterns Like a Pro Part 2
17. Learn to Trade with Technical Indicators
18. How to Trade Moving Averages Like a Pro (Part 1)
19. How toTrade Moving Averages Like a Pro (Part 2)
20. How to Trade the MACD Indicator Like a Pro (Part 1)
21. MACD Indicator: Trade it Like a Pro (Part 2)
22. How to Trade the Relative Strength Index (RSI) Like a Pro
23. How to Trade Stochastics Like the Pro's Do
24. The Difference Between the Fast, Slow and Full Stochastic
25. How to Trade Bollinger Bands - Stocks, Futures, Forex
26. How to Trade the Average Directional Index (ADX)
27. How to Trade the Parabolic SAR
28. How to Trade Candlestick Chart Formations Part 1
29. How to Trade Spinning Tops and Doji Candlestick Patterns
30. How to Trade the Bullish/Bearish Engulfing Candlesticks
31. How to Trade the Hammer Hanging Man Candlesticks
32. How to Trade the Morning/Evening Star Candlestick Pattern
33. How to Trade the Inverted Hammer/Shooting Star Patterns
34. Why Most Traders Lose Money and The Solution
35. Why Traders Hold On to Losing Positions
36. Two Trading Mistakes Which Will Destroy Your Account
37. Herd Mentality is the Psychology That Leads to Big Trading Losses
38. Profit Expectations: What Millionaire Traders Know
39. How to Join the Minority of Traders Who Are Successful
40. How To Determine Where to Put Your Initial Stop Loss Order
41. How to Use the Average True Range (ATR) To Set Stops
42. How to Up Your Chances for Profit When Setting Stops
43. How to Reduce the Chances of Being Stopped Out on a Trade
44. How Successful Traders Use Indicators to Place Stops
45. Stop Your Mind From Causing You to Take Profits Too Soon
46. How To Use Trailing Stops
47. Why Position Sizing is So Important in Trading
48. Why Fixed Position Sizing Is Not the Best Way to Trade
49. Trading The Martingale and Anti Martingale Strategies
50. How to Set Trade Position Size for Maximum Profits
51. Maximize Trading Profits with Correct Position Sizing 2
52. Fundamental Analysis and The US Economy
53. A Simple Explanation of the US Economy for Traders
54. Simple Explanation of The US Economy For Traders Part 2
55. The Business Cycle and Fiscal Policy - What Traders Know
56. How Interest Rates Move Markets
57. What Traders Know About Interest Rates Part 2
58. What Traders Need to Know About The Structure of The Fed
59. How the Fed Changes Interest Rates
60. How to Determine When the Fed is Going to Change Rates
61. Why Markets Move Ahead of Interest Rate Announcements
62. How to Trade the GDP Number (Part 1)
63. The Components of the Gross Domestic Product (GDP)
64. Intro to Trading Non Farm Payrolls (NFP's)
65. Trading the News - Economic Numbers - Retail Sales
66. Trading the News - Economic Numbers - ISM Manufacturing
67. The Producer Price Index (PPI)
68. The Consumer Price Index (CPI)
69. Trade the News - Existing Home Sales Index
70. How To Interpret the Consumer Confidence Index (CCI)
71. How to Interpret the Index of Leading Economic Indicators
72. The Advantages and Disadvantages of Day Trading
73. The Advantages and Disadvantages of Swing Trading
74. The Advantages and Disadvantages of Position Trading
75. How to Keep a Trading Journal
76. The Most Important Attributes of a Good Trading Journal
77. The 20 Components of a Successful Trading Plan

This is a series of 77 short video lessons meant to give traders an introduction to the basics of trading as well as the components necessary to develop a profitable trading plan.