Money Mangement Example

[forclo]

Your risk per a trade should probably not exceed 3% per trade. It is better to adjust your risk to 1% or 2% but depending on the system this may vary.

1% risk of a $100,000 account = $1,000

You should adjust your stop loss so that you never lose more than $1,000 per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = $1,000
1 pips = $20

The size of your trade should be adjusted so that you risk $20/pip. With 20:1 leverage,your trade size will be $200,000

If the trade is stopped, you will lose $1,000 which is 1% of your balance.

This trade will require $10,000 = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = $1,000
1 pip = $5

The size of your trade should be adjusted so that you risk $5/pip. With 20:1 leverage, your trade size will be $50,000

If the trade is stopped, you will lose $1,000 which is 1% of your balance.
This trade will require $2,500 = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.

[Btrader]

That is indeed a good post!

Thanks for the example you shared.. at least it gives better visualization on how it will really works..

[derrekmay]

that's a verry good way to do your own money mannagement, but I have decided to let a person who has allot more experience then me do this job.
And I like what I see for the moment.

Annyway do you always stick to this rule?

[ellict]

Originally Posted by forclo

Your risk per a trade should probably not exceed 3% per trade. It is better to adjust your risk to 1% or 2% but depending on the system this may vary.

1% risk of a $100,000 account = $1,000

You should adjust your stop loss so that you never lose more than $1,000 per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = $1,000
1 pips = $20

The size of your trade should be adjusted so that you risk $20/pip. With 20:1 leverage,your trade size will be $200,000

If the trade is stopped, you will lose $1,000 which is 1% of your balance.

This trade will require $10,000 = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = $1,000
1 pip = $5

The size of your trade should be adjusted so that you risk $5/pip. With 20:1 leverage, your trade size will be $50,000

If the trade is stopped, you will lose $1,000 which is 1% of your balance.
This trade will require $2,500 = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.

May I add here?
Total open position should not exceed 6% of equity at any time, when we stick on 1% rule, we should only had six trade at 1% risk for each trade or three trade on 2% risk.
Never expose risk on total equity more than 6% at any time

[ellict]

Elder say this rule to prevent from the shark and from piranha