I have had a demo account for about a week now, and by Wednesday I had moved more toward sticking to a strategy than going on gut feeling and guessing (gambling).
It went quite well. I traded in mainly 1 Lot sizes, but ventured into 2 lots (on a $5000 demo, is this too much to trade ?).
In two days my demo balance reached $6700.
Now, Ive read somewhere that the best trader makes roughly 32% per annum. Is this right, or am I heading for another lesson pretty soon ? I can post my statement if that helps you see what Ive done. The bigger losses on it happened when I didnt keep to the strategy, other wise I reckon my account could have grown past $8000 easy.
My major mistake was making a bad trade and waiting to see if it would come back round again to break even, then cutting it at a $2-300 loss :-). I dont mind just now as Im learning and its play money.
I have another question though. Im not asking for private details, but how many people just pay the bills with this, how many make a living and how many make an absolute huge profit ?
I am hoping to just make a living off it eventually, maybe travel a bit.
If you are talking about mini lots, you may want to cut it in half to 0.5 lots. I have found that putting too much into a single trade does not allow enough wiggle room if it temporarily goes against you. Also using smaller lot sizes allows you to use a multiple trade strategy which I like very much. If it is a standard lot, you are in way to deep for that size account.
so 1 LOT is too much to be trading on a $5000 account.
0.5 LOT would be better ?
Its just that I was going by the rule of not risking more than 2% of my capital on a trade. When I trade 1 LOT, then 1 pip = $10. So I would stop the loss at between $40 and $100 at the most. Then I would try again.
If your strat uses a 4 pip thats probably to tight, but since this is demo I say keep at it you will see the effect of spread. As for lot size 2% per trade is the “acceptable amount” it looks like you figured it out correctly.
If you have a really tight stop my guess is you are making allot of trades, if this were real money I suggest you risk .5% to 1% per trade it will allow you to have a losing streak with out decreasing your capital to fast. When you capital goes [B]up[/B] or [B]down[/B] to fast people do stupid things;).
3R = 3x Reward potential for every $ Risk of Capital.
shouldn’t you determine your stop loss based on price action?
What you should and shouldn’t do is entirely up to you. What works for me might be of no use for you. And vice versa.
If I don’t identify a trade set up in PA with 3R potential I won’t even think about taking the trade. Because it doesn’t comply with my rules in a particular strat that requires a 3R.
I am looking at potential Reward first. Then I look where I might place my S/L based on PA.
And I have no intention that my determined S/L gets hit.
I don’t sit there and staring at PA…waiting to hit my S/L. I don’t trade like that.
What you are asking is really a money managment/ risk question.
There are a few ways to go about it:
Risk only 1-X% of your account per trade, for any trade, regardless of what you think about the probability of winning. Most here will tell you, you should never risk more than 3% per trade no matter what. That is the accepted doctrine for most. If you keep winning you compound up, if you lose you compound down. So, if you win say 10 trades in row, that 3% grows rapidly as your account size has grown.
Decide your risk per trade on how likely you think it is you will win… compound up or down.
Instead of trading x percentage risk, base the lot size on how many hundreds or thousands in your account. Every K is a new level. For example: $1000, account $1.00 per pip lot size. When you reach $2000, you trade $2.00per pip.
Mathmatically, that is on paper, compounding x percentage works faster.
I’ve found that in reality that trading levels, that is #3, seems to work better. As you are not constantly changing your lot size up and down for every little loss or win, you only change it up or down once you gain or lose a level. So, when you lose, it’s easier to make it back with the next win as the lot size hasn’t gone down…provided you haven’t lost a whole level. (you still need a good win ratio, as with any method)
I personally also change my lot size based on how probable I think the win is. I will risk more if I think it’s highly probable I’ll win.
P.S. 32% per anum for a day trader is not good. That would be awesome for a yearly investment where you let someone manage a fund or something and you already had at least 100k. But, for a day trader that is piss poor.
Consider a day trader who only risks/makes 1% per trade, and trades regularly and compounds their account (that is they don’t take out their winnings and keep trading larger as their account grows). That would mean out of possibly hundreds of trades they only made 32%…might as well pack it in.
On an account that’s a few K, I made +44% last week, and that wasn’t even a good week, pip wise I only took in 203 pips. Did I risk more than 1%? Yes, but I knew the trades were high probability to win, so I risked more and traded with bit of larger lot size.
In the end you should always consider your risk first. If you can’t stomach the risk then either take down your lot size or don’t take the trade.
