Lesson One Position Sizing & Risk Management Video Lecture | Stock Trading: A Complete Guide (English) - Business Basics

hey guys Allen here with eat sleep trade
dotnet welcome to my first lesson video
we're gonna be looking at position
sizing and risk management one of the
biggest questions or one of the first
questions traders always ask is how much
money do I need to start trading so
hopefully by the end of this video
you're gonna have an understanding for
how much money you need to begin trading
okay so we're gonna be looking at eks o
as an example today and we're looking at
the daily chart so what that means is
each one of these candles represents an
entire day's worth of trading all right
we've got a red line here which is gonna
represent a stop loss which are
implementing at 123 we've got a yellow
line which is gonna show the price at
which we bought the stock and we've got
our green line up here which is going to
represent our limit or our goal where we
think the stock is going to go okay so
we're looking at fidelity's active
trader Pro and right over here on this
window this is called the trade Armour
and it allows you to use a buy triggers
bracket so you could set a price at
which you want the stock to buy a price
of what you wanted to sell on the high
end and of course a stop where you want
it to sell on the low end so I don't
really use this particularly for
actually placing the trade but it comes
in handy when you get to plug in your
numbers and you get to see your profit
and loss so we're watching eks o and we
see some higher highs and we see some
higher lows whoops I'm sorry we see some
higher highs and some higher lows sorry
I said that backwards and we're looking
for a reversal on this pullback if we
get a green candle that opens up higher
than the previous day's high
and to me that is a buy signal so we
went ahead and let's say we bought this
stock at 141 and we've got a stop place
down here now at 123 and we've got our
limit up here at 160 so back over here
to the trade Armour you could see that
we bought $50 or I'm sorry 50 shares and
at 141 that would cost approximately 70
dollars so right now we've got a $70 buy
for 50 shares and if we hit our upper
bracket of 160 we'll make 13 almost 13
and a half percent or $9.50 so hey
that's pretty good we're gonna invest 70
bucks and we're gonna make 950 I like
those returns but what traders don't
think about or new traders don't think
about is the cost of trading from
Commission and fees so for example in
order for me to trade it costs me $7.95
to buy a share or $7.95 to sell a share
so you're looking at $16 cost in order
for me to make one trade now if I were
to make this trade only putting $70 down
I would have lost six dollars and fifty
cents so in this scenario based off this
stock in this trade plan seventy dollars
is not enough money to trade so you
could see how that number will change
based on the cost of the stock your
trading and your trade plan so let's
change this to something a little bit
more realistic like five hundred shares
so now we have five hundred shares and
we can make ninety five dollars still at
our same 30
and a half percent so now that we've got
$95
we're profiting 79 79 dollars once you
subtract your Commission and so we're
looking at 500 shares which is seven
hundred seven hundred and five dollars
you add your commission sixteen dollars
you're looking at a seven hundred and
twenty one dollar investment for and
ninety five or I'm sorry a $79 profit
okay so let's go look at our stop now
and this is our risk so risking twelve
percent of your trade it's too much
that's way way too much so we would need
to move this stop somewhere up here
probably at the day's low of 135 so
let's plug that in and see what we're
risking off that four point two six
percent okay now that's acceptable our
risk acceptance is five percent or less
per trade also the dollar amount so this
thirty dollar risk should be less than
two percent of your total account value
okay so now we've got a thirteen and a
half percent gain a four percent risk
and we've checked to make sure that
thirty dollars is gonna be less than two
percent of our entire account all right
now we're gonna see how this trade
played out and how we managed our stop
loss in risk through the trade so next
day you see we get a red candle here we
put a higher low so that's always good
we put a higher high so that's always
good so even though we didn't get you
know a nice run up like we were hoping
for two or three candles like we've seen
here or three or four candles like we've
seen in the past our trade plan or ideas
not broken as we haven't hit this one
thirty five we're gone below 135
so next day you see another red candle
but it's just consolidating nicely with
the previous day nothing to worry about
too much basically just a neutral candle
for our trade idea third day coming in
you could see the low comes down and
test 135 we'll see we didn't get stopped
out because it didn't you know we could
say our stop was that 135 1 and that
test only came to 1 3 5 4 or something
like that for example so let's see what
happens on the next day so it's pretty
similar candle red candle again the low
doesn't quite come to 135 just test the
136 next day we get another red candle
consolidating within the previous day's
candle and then another red candle who
has pretty much been staying right
inside the same range our stop loss of
135 is still implemented at this point
in time you're probably thinking maybe I
should just get out of this trade and
move on to something else that seems to
be a little bit more active we had one
two three four five day pullback we had
one two three four five day pullback so
we had two five day pull backs in a row
and now we're one two three four five
six days in so we're feeling like we're
waiting but we made our our stop loss at
135 that was our original trade idea so
we just want to leave it there and
continue on so let's see what happens on
the next day and there we go we get a
nice screen candle so now we're
recovering a little bit here and
starting to see what we were hoping for
now hopefully we can follow with another
2 or 3 days worth of green candles so on
this day here you could choose to either
move your stop-loss up maybe you want to
go to 141
or anywhere in here that if you're
afraid and you know if you just want to
move it up because you want to lock in
as much profits as possible so let's see
what happens on the next day so next day
we get another red candle and it looks
like it comes down and tests this 141
range so maybe if you had move your
stop-loss up to that 141 it could have
stopped you out you know there wasn't a
whole lot of range right here that's why
I decided not to move my stop-loss so
let's see what happens on the next day
and finally we get really the bigger
green strong candle that we were looking
for so patience pays off our stop loss
of 135 held up through all these
consolidation days and we made it to our
next breakout we hit our 160 limit and
broke above that so everything's looking
really good so we're gonna move our stop
loss up and lock in some of our profits
now there's lots of places you can put
this you could put it at the high this
day you could put it at the high of this
day here 157 you could put it at 160
which your limit was you could put it at
this high right here which is the
previous high we just broke above so
that's a pretty good spot let's put it
there we're gonna put it at 164 so let's
update this and now you can see we've
locked in a hundred and fifteen dollars
or 16% so let's see what happens on the
next day we get another green candle so
what do we do we're gonna take our stop
loss and we're gonna move it up again so
let's say we brought it up to 176 so it
looks like a pretty good area you know
we've got three strong days of green
candles as you can see that's been about
our max on our previous runs does that
mean that that's the max right here and
it's not gonna go up more no not at all
we don't know how high a stock
go we're just using technical analysis
to make the best educated guess that we
can that a sock is going to go up but we
don't really know how much it's going to
go up but what we do know is how much
we're willing to let it go down so right
here we're willing to let it go down to
176 and if it decides it wants to go up
more then we'll let it so let's see what
happens so next day comes and as you can
see we hit our stop so we get stopped
out at 176 and we profited 24 percent
which is great we want to try to keep
our profits in the 10 to 25 percent
range and our risk in the 5 percent or
less with that number with that number
our amount of each trade we're risking
being less than 2 percent of our total
account all right guys that's gonna wrap
it up for this video if you have any
questions please leave them in the
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look forward to seeing you guys in the
next video thanks