Trading Bitcoin: 4 Steps to Calculate Your Position Size - Risk Management EXPLAINED

hey guys Dustin here from Salva spike

calm and in this video I will be

explaining how to determine your

position size for any trade you take

whether it be Bitcoin and the altcoin or

really any market so in other words I'll

be explaining step by step how you

should calculate how much money you

should enter a trade with so to

calculate your position size there are

four simple steps first I'm going to go

over the steps and then we'll follow up

with a couple concrete examples so you

completely understand how to go about

doing this so alright here are the four

steps to calculate your position size

first you want to decide on the

stop-loss meaning at what point will you

cut out of your trade if it does not go

in the direction that you desire number

two is you decide on your risk amount so

what this means in practice is to decide

what percentage of your trading capital

you are willing to lose in any given

trade I would suggest starting out with

a default of 2% so decide to risk 2% of

your trading capital in any given trade

and once you have more experience you

can vary that risk amount number three

you want to find the percentage move

from your entry to your stop-loss and

finally number four you want to divide

your risk amount remember that 2% by

that number that number meaning the

percentage move from your entry to your

stop-loss if you're not totally

following along that's okay we're gonna

get into a couple specific examples now

and I'm going to show you how to do this

so let's imagine that you want to go

long Bitcoin this is a Bitcoin chart I

have up here and let's imagine you want

to go long at 8600 let's say your target

is 10 K by the way I'm not suggesting

that this is a good trait that you

should take it's just totally

hypothetical but let's just say your

target is about 10 K and you decide to

put your stop-loss underneath this swing

low right over here

meaning that you're buying Bitcoin here

but if it drops below around 7870 then

you're going to cut out if your

at a loss so we have already completed

step number one which is decide on our

stop loss step number two is decide on

our risk amount so let's pretend that

your trading capital is two thousand

dollars and remember we are going to

risk two percent on any given trade so

two percent of two thousand is forty

bucks so now we've completed number two

we've decided on our risk amount which

is $40 number three find the percentage

move from your entry to your stop-loss

so we can see it shows us right here

it's eight point eight three percent

because if our entry is at eighty six

hundred and our stop loss is at 7600

then that is an eight point eight three

percent move down and you can use this

long position tool or another trick you

can do is just hold the shift button on

your keyboard and then left-click and if

you drag the mouse down to where your

stop loss will be it'll show you the

percentage move and this works in both

directions so that's number three the

answer to number three is eight point

eight three percent and finally we're

gonna divide our risk amount by that

number so we're gonna divide let's bring

up a calculator here we're gonna divide

$40 by zero point zero eight eight three

because that is eight point eight three

percent and we get four hundred fifty

three dollars so what this tells us is

that your position size for this trade

should be four hundred fifty three

dollars so you have a trading capital of

two thousand dollars you're going to use

four hundred fifty three of that to buy

Bitcoin and if the trade doesn't work

out then you're only going to end up

losing 40 bucks so hopefully that makes

sense it's pretty simple let's do one

more and this time let's pretend that

we're going to enter a short on Bitcoin

so here I'm just going to choose the

short position tool

and again let's say we want to enter at

8600 this time let's say our stop loss

is above this recent swing high and for

calculating your position size it

doesn't actually matter where your

target is but just for the purposes of

this video let's say our target is 70

200 ish and this time let's say your

trading capital is $3,000 so 2 percent

of $3,000 it's going to be 60 bucks now

number 3 find the percentage move from

our entry to our stop loss so if our

entry is here the percentage move is

going to be six point five three percent

this time so let's bring up a calculator

again now we're going to divide our risk

amount which in this case is $60 divided

by point zero six five three because

that is the percent move from our entry

to our stop loss and that equals nine

hundred let's call it 919 dollars so

your position size for this trade for

this short trade should be nine hundred

nineteen dollars again with the trading

capital three thousand dollars and

assuming that you're risking 2% per

trade it does not matter how much

leverage you are using you could be

using one x leverage to X collaborator

to no leverage or 100 X leverage well

not 100 X leverage because you would get

liquidated before your stop-loss hits

but let's say 10 X leverage no matter

how much leverage you're using your

position size should be nine hundred and

nineteen dollars on this short so

hopefully all that makes sense thanks

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good luck