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Guide to position sizing your Crypto trade

So you want to buy some Crypto but want to predefine your loss. That is how much of your Base currency you are willing to lose before you close out the position.

I couldn’t easily work out how to define how much I was willing to risk on each trade. I’ve used Stop-loss orders successfully in fiat currency trading for years but this isn’t easy to do in the crypto world yet. Most exchanges don’t allow for a profit and loss statement so it’s hard to know exactly how much you are making or losing in each trade.

I suspect that most “traders” in the crypto space just buy without a plan and then hold until either the losses hurt too much or they are in profit. This can easily see trading capital locked up in a losing trade indefinitely while the trader waits for things to turn around. Holding losses and cutting short your wins is a recipe for disaster!

I would like to outline the steps I take before opening a trade denominated in BTC. So pairs like BTC/ETH, BTC/LTC, etc.

Step 1

  • Determine my capital set aside for short-term trading purposes. This doesn’t include long-term buy and hold.

Step 2

  • Determine how much of my trading capital I am comfortable losing on 1 trade.
  • This is a percentage of the total capital. ie 2% of $10000USD would be $200. ( I use USD as my base currency, you might use BTC or ETH it’s up to you)
  • How much you risk per trade is another whole topic, for this example, ill go with 2%.

Step 3

In this example $200USD = 0.004139962 Bitcoin (BTC)

Step 4

  •  Identify in my trade setup where I want to enter and where my stop-loss should go.
  • In this example, I’ve put the stop loss below the support level at 4500 satoshis. This is just an example and probably not a good entry point.

Step 5

 So the question now is how many ripple(XRP) do I buy in order for my trade risk to be $200 or 0.004139962 Bitcoin (BTC).

  • We need to know how many Satoshis our stop-loss is. In this case, it is 300 satoshis. (our entry 0.00004800 minus our stop loss 0.00004500)
  • see here for more information on a Satoshi.

Step 6

 Now for some simple maths!

  • If our stop-loss is 300 sats and we want to risk 0.004139962 BTC ($200) then we need to divide 0.004139962 by 300 which gives us 0.00001366666 BTC per sat.

Step 7

 Next, we divide the 0.00001366666 BTC by 1 sat or 0.00000001 to tell us how many XRP we need to buy.

  • So 0.0001546654/0.00000001= 1366.66 XRP
  • So if we buy 1366.66 XRP at 0.00004800 and sell it at 0.00004500 we will lose 0.004139962 BTC or $200.

Step 8

We can test this by the following calculations-

  • Multiply 1366.66 XRP by 0.00004800(our entry price) which will cost 0.064239392 BTC.
  • Then multiply 1366.54 XRP x 0.00004500( our exit price) = 0.61472 BTC
  • So our entry cost of 0.064239392 BTC minus our exit of 0.61472 BTC will be 0.004139962 BTC or $200

Please comment on any mistakes or improvements on position sizing as I’ve posted this to hopefully help others and maybe learn something myself. If anyone would like to develop a position size calculator let me know as I haven’t been able to find one.

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