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Implementation of Position Sizing Strategy in Trading Money Management

After discussing the Martingale and Anti-Martingale strategies, this article will explore two additional strategies, namely Fixed Position Sizing, Scaling In, and Scaling Out. Let's discuss each strategy along with its benefits and application in trading.

Fixed Position Sizing

Fixed Position Sizing, often set using the 2% rule, limits the maximum risk per trade to 2% of the total trading portfolio. Thus, the risk remains proportional and does not experience significant drawdowns. To implement this strategy, you need to determine the risk per trade in monetary value before determining your lot size or trading volume. For example, if your account balance is $500 and you set the risk per trade at 2%, then the maximum risk per trade is: 2% x $500 = $10. For instance, if you're trading EUR/USD, GBP/USD, or AUD/USD in mini lots with a pip value of $1 and a maximum risk of 40 pips, then your trading lot size is: $10 / 40 = $0.25. If you're trading in micro lots with a pip value of $0.1, then your trading lot size is: $0.25 / $0.1 = 2.5 lots. Many traders combine this fixed position sizing with the Anti-Martingale strategy to achieve optimal trading results.

Scaling In and Scaling Out 

The main goal of money management strategies is to minimize total losses as much as possible and maximize total profits. One way to achieve this goal is through the Scaling In and Scaling Out methods.

  1. Scaling In is a method where traders open positions at various planned levels. Typically, traders will enter at the current market price, breakout, or pullback. With Scaling In, additional entry positions can be added during the next pullback or breakout. Timing for entry in Scaling In can use support levels, resistance, Fibonacci retracement, chart patterns, or technical indicators.
  2. Scaling Out is a method where traders exit some trading positions at different planned price levels. Scaling Out is related to trading positions resulting from Scaling In, where the stop and target levels for each position may differ. For example, in the Scaling Out strategy, you can decrease trading lots on floating positions to secure profits that have already been obtained.

In this article, the Position Fixing, Scaling In, and Scaling Out strategies have been discussed as part of trading money management. Each strategy has its own uniqueness and benefits in managing risk and optimizing profits. It is important for every trader to understand and master these various money management strategies to enhance their success in trading.


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