How much do you risk per trade? | Forex Factory

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How much do you risk per trade?

  • #1
  • First Post: Mar 26, 2007 7:31pm Mar 26, 2007 7:31pm
When it comes to money management, it seems a lot of us rely on a fixed percentage per trade.

IE) I am going to risk 2% of my account on each trade.

Well, what happens if you lose? Case and point: I start with 10K and lose, now I have $9,800 in my account...

What do I do on my next trade? Trade 2% of 10K again or 2% of $9,800? You can see that as you lose repeatedly, your capital will fall to 50% after 25 losses in the former....

But what if you were trading 2% of the CURRENT balance? Your entries get smaller each time, and your payout for a big win will be smaller. So to get back to breakeven, you could need 2 or 3 big winners if you are in big drawdown.

I am leaning toward 2% of the highest balance for all trades.... that gives me room for roughly 50 losers in a row....
  • #2
  • Mar 26, 2007 7:36pm Mar 26, 2007 7:36pm
why not use a %R for your Money Management?
  • #3
  • Mar 26, 2007 7:38pm Mar 26, 2007 7:38pm
%R?
  • #4
  • Mar 26, 2007 8:16pm Mar 26, 2007 8:16pm
I am really bad at explaining things....I'll try.........you use the same % risk for every trade... example: $100 risk 2%= $2.00
$102 risk 2%= $2.04
$98 risk 2%= $1.96

I'm sure if you google it you can find some info on it. Figi trader has a section in the James16 Group that goes into GREAT detail about it. He has some amazing ideas in there that will open your eyes.


Take Care
RSQ955
  • #5
  • Mar 26, 2007 8:31pm Mar 26, 2007 8:31pm
Okay so what I have described in Post #1 is the comparison of %r vs. using %r of your highest balance before drawdown....

I am leaning toward the latter.
  • #6
  • Mar 26, 2007 8:34pm Mar 26, 2007 8:34pm
Quoting rsq955
I am really bad at explaining things....I'll try.........you use the same % risk for every trade... example: $100 risk 2%= $2.00
$102 risk 2%= $2.04
$98 risk 2%= $1.96

I'm sure if you google it you can find some info on it. Figi trader has a section in the James16 Group that goes into GREAT detail about it. He has some amazing ideas in there that will open your eyes.


Take Care
RSQ955
I think tdion suggested this in his first post when he said "CURRENT balance."

Anyway, I use %R on current balance, and I like it better because when you lose, you keep losing less, and when you win, you keep winning more(assuming your wins and losses are consecutive).

I think either way is fine though(the % part is important).

Regards,

Kevin
  • #7
  • Mar 26, 2007 8:41pm Mar 26, 2007 8:41pm
Tdion,

I guess I didn't read your 1st post right. Sorry for the confusion. Just trying to help


Take Care
Rsq955
  • #8
  • Mar 26, 2007 9:06pm Mar 26, 2007 9:06pm
I switch my strategy, years ago I enter 40 to 50% of account (scalping) but the risk is too much for my health (jejejej). Now, I enter with the 20% of account in several trades (most times 1 trade) and longterm trades.

More than 20% is very risky and hard for controlling.


This strategy give me an 100% of gain each month.... 24 january Account balance 3k... today account balance 11K.
  • #9
  • Mar 26, 2007 9:20pm Mar 26, 2007 9:20pm
Are you saying that you risk 20% of your account per trade? Two losers would put you at @ 60% of your starting balance!

You've had a nice run, but isn't 20% just too much? It makes me wonder if you use a stop loss. Thanks.

Quoting pablorpl
Now, I enter with the 20% of account in several trades (most times 1 trade) and longterm trades..
  • #10
  • Mar 26, 2007 9:36pm Mar 26, 2007 9:36pm
Quoting tdion
Are you saying that you risk 20% of your account per trade? Two losers would put you at @ 60% of your starting balance!

You've had a nice run, but isn't 20% just too much? It makes me wonder if you use a stop loss. Thanks.


always % of current balance, one of the main objectives in FX is to protect capital, without it you have nothing, and by using 2% of your CURRENT balance a string of losses won't hurt you too much.
  • #11
  • Mar 27, 2007 12:34am Mar 27, 2007 12:34am
Quoting tdion
Are you saying that you risk 20% of your account per trade? Two losers would put you at @ 60% of your starting balance!

You've had a nice run, but isn't 20% just too much? It makes me wonder if you use a stop loss. Thanks.

The key is know when and how stop a loss trade. I'm a professional trader and I'dont use SL in forex because the majors (i'm only trade majors specially gbpusd) have many reversals.

Anyway your should define your strategy according to your risk tolerance.
  • #12
  • Last Post: Mar 30, 2007 6:32pm Mar 30, 2007 6:32pm
Quoting tdion
When it comes to money management, it seems a lot of us rely on a fixed percentage per trade.

IE) I am going to risk 2% of my account on each trade.

Well, what happens if you lose? Case and point: I start with 10K and lose, now I have $9,800 in my account...

What do I do on my next trade? Trade 2% of 10K again or 2% of $9,800? You can see that as you lose repeatedly, your capital will fall to 50% after 25 losses in the former....

But what if you were trading 2% of the CURRENT balance? Your entries get smaller each time, and your payout for a big win will be smaller. So to get back to breakeven, you could need 2 or 3 big winners if you are in big drawdown.

I am leaning toward 2% of the highest balance for all trades.... that gives me room for roughly 50 losers in a row....

I assume that this would be totally your call although personally I would risk 2% of my equity, so if I took a loss, then my equity is smaller & thus the 2% will be a smaller dollar amount on the next trade & so on...

The other factor which you didn't mention is the position size...Your 2% can be a less dollar amount because your equity dropped, but you can keep your stops the same by lowering your position as your equity drops...

For example, if your account is $10,000 & let's say that you can trade micro lots and your stops are a fixed number of pips at 100 pips...For your stop to be 100 pips on the EUR/USD with a 2% risk ($200), then you are trading with 20k or 2 mini lots in position size...

Now let's say that you took 1 loss & your account is now at $9,800...Your next 2% is $196...To make this $196 equivalent to the same 100 pips, you will have to reduce your position size in the next trade...

In the first case you divided $200 in risk by 100 pips stop to get your position size of 2 mini lots...Now you divide $196 by 100 pips to get the position size for the next trade which is 1.96 mini lots or 19.6k...Of course this position size is acheivable through a micro account since micro accounts allow you to trade with 1k, 5k and 10k, so all combinations are available...

As you said, your position size is always dropping when your equity drops, but so does your losses as well...You are concerned that you will need large wins to recover since you will be using small position size, but this is not true since you will be increasing your position size after every win as well...

This way, in my opinion, is how you can decrease the rate of losses & increase the rate of wins...In my opinion, this is one of the ideal money management methods...


Thanks,

Nader
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