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U.S. Government Required Disclaimer Trading foreign exchange on margin carries a high level of
risk and may not be suitable for all investors. The high degree of leverage can work against you as well
as for you. Before deciding to invest in foreign exchange you should carefully consider your investment
objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of
some or all of your initial investment and therefore you should not invest money that you cannot afford
to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice
from an independent financial advisor if you have any doubts. Information contained within this report is
not an invitation to trade any specific investments. Trading requires risking money in pursuit of future
gain. That is your decision. Do not risk any money you cannot afford to lose. This document does not
take into account your own individual financial and personal circumstances. It is intended for
educational purposes only and NOT as individual investment advice. Do not act on this without advice
from your investment professional, who will verify what is suitable for your particular needs &
circumstances. Failure to seek detailed professional personally tailored advice prior to acting could lead
to you acting contrary to your own best interests & could lead to losses of capital.

*CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF
CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS
IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE
BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR
IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Past Performance Past performance is not indicative of future results. This report does not make
any representation whatsoever that trading might be or is suitable or that it would be profitable for you.
Please realize the risk involved with trading Forex investments and consult an investment professional
before proceeding. Any trading systems herein described have been developed for sophisticated
traders who fully understand the nature and the scope of the risks that are associated with trading.
Should you decide to trade any or all of these systems, it is your decision.

2
 Position Sizing Rules
Position sizing is an important part of trading. Your position size is one of the determining
factors as to how much you win and how much you lose on a trade. This brief report will help
you understand how to determine your position sizing and risk every time you trade.

So what is Position Sizing?

Position sizing is a simple concept that asks the question, How Much?. In other words how
much should you risk on any given trade.

There are several factors that go into answering this question, the two most important being:

Determining your trading objectives

Knowing yourself i.e., what is your "risk personality"

For example, you might be young and aggressive in your investment strategies... which means
you will more than likely will have a higher tolerance for risk.

On the other hand, you may be nearing retirement and are only looking for supplemental cash
flow. Because of this, you may not want to take major risks.

No matter what your objectives are, you can achieve those objectives through the proper use
of position sizing.

When I figure up my position size for a particular trade I also take several things into account.

The most important of which is what is my potential reward on this trade. This is known as
Reward to Risk Ratio or RRR. If my potential reward is three to four times greater than my
potential loss I will be more aggressive in my position size.

I am including three different position-sizing parameters here for different risk levels so you can
choose based on your objectives and your risk tolerance.

3
 The Three Levels of Position Sizing
You must determine what your goals are and how much of a drawdown you can withstand.
With this in mind, and to keep it simple, I recommend using three levels of position sizing:

1. Conservative
2. Moderate
3. Aggressive

The table to the right shows you how much is

needed to recover to breakeven, based on the
amount of drawdown that you suffer

Notice that it takes 43% to recover to breakeven

with a drawdown of 30%. Then, at 45%, you must
make a recovery of 82% on your remaining equity.

You can see from this chart how important it is to have

a disciplined approach to risk and money management.

There are a few simple rules to follow when it comes to determining your position sizing.

1. Never compound backwards If you start with $2,000 and your account falls to
$1,000 do not use the position size of a $1,000 account. Stick with the original position
size that you started with.

2. Always compound upwards If your account grows from $1,000 to $2,000 begin
using the position sizing for a $2,000 account.

3. Stay with your initial risk level Whatever the initial risk level you choose, stick with
that level. The only exception would be if you are starting with a lesser risk level, you
can move up. Therefore I recommend starting with the Conservative risk level for your
first month to see how you handle it.

4
 Fractional Position Sizing
Now that you have a basic understand of position sizing and it's importance, the actual position
sizing formula that I use is known as Fixed Fractional Position Sizing.

With this type of position sizing you are basing your risk in each trade on a fixed percentage of
your account.

For instance if your account is $1,000 and you decide to risk 1% of your account, then you
would be risking $10 in that trade.

Here is how the formula works.

N = f * (Equity/Trade Risk)

N stands for the number of lots to be traded. F stands for the fixed risk percentage. Let me
give you a real life example that will be easy to understand.

N = 2% * ($10,000/100 pips)

$10,000/100 pips is 100.

2% * 100 = 2

So the number of lots equals 2 or in this example, 2 mini lots. Each increment of 1 is equal to
1 mini lot. So 10 would be 1 full lot. In this trade you would be risking $200 of your account
equity. So if the trade were to be a complete loss you would lose $200.

Its a pretty simple formula but the good news is that you dont have to calculate all of this on
your own every time. In the members area you will find a position sizing calculator that will help
you easily figure your position size based on your starting account balance.

Practice with you position sizing approach while you demo-trade if necessary. Once you are
clear on your risk tolerance, you can start trading in real time and growing your account.