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Not All Lot Sizes are Equal
What I have noticed over decades of trading is a simple mistake much make, including me. I thought I would draw the problem to your attention, that not all lots sizes are equal.
You probably already know that different currency pairs, stock indexes, and other trading symbols experience different degrees of volatility in a day. The problem with this is that many of us are accustomed to entering trades based on fixed lot sizes.
It is interesting how the mind plays tricks, often in subtle hard to detect ways. I always believe when I am trading that I am position sizing based on a percent of equity but the truth is I almost never do the appropriate math, instead I default to trading say 1 lot at a time. Working with a consistent position sizing metric is a source of “comfort” but it is a mistake let me show why.
To make a fair comparison I am going to assume that I am prepared to lose up to $1,000 per trade per symbol per day. So we calculate the different position sizes that will achieve a $1,000 loss with a 95% probability that we will lose less than $1,000 based on the underlying volatility of the symbol.
As you can see from the above, it is not so simple that you can trade 1 lot at a time and achieve the same risk, as you do by making lazy short cut assumptions.
What this table is showing is that you need to trade 1.72 lots of AUDUSD to achieve the same risk as 0.96 lots of GBPUSD. Trading 1 lot for AUDUSD and 1 lot for GBPUSD will give you very different P&L results
I would love some thoughts on how you would like us to help you handle the lot sizing described above. We can do a lot to help. I await your thoughts.