Original Question: How do you calculate your position size when you are testing the water?
When I am testing the waters after a period of little opportunity (typically coming from a market correction) I follow my normal position sizing procedure as explained here. However I control risk by keeping my open heat in check. Open heat refers to the percentage of your trading account which you would lose if all recent fresh money trades (longs or short) would hit their stops at the same time. There is no such thing as hedging when it comes to open heat so shorts don’t offset long trades and vice versa.
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