Knowing how much you can afford to lose

1% risk per trade is only part of the consideration necessary. If the stop distance is 1% or more of the total pip value of the pair, then a sudden illiquid move will not completely wipe the account out. But a 1% risk position with a 10 pip stop on a pair at 1.0800 would wipe the account out completely on a move half the size as the Jan 15th swiss move. The solution is a maximum position size per pair or said another way: a minimum stop distance.

One easy method: [B]Risk 1% per trade with a minimum stop distance of 2% of the total pip value of the pair.[/B]

A trader following that rule in a swiss pair on Jan 15 would have seen about a 10% change in his account size per swiss pair he traded.

What is a 2% of total pip value stop? If the pair is trading at 1.0800 it has a total value of 10,800 pips. 2% of 10,800 is 216. The minimum stop distance for a pair at 1.0800 at a 2% minimum is 216 pips.

-Adrian

Yes 1 % risk is enough in any position to take. If we use more money in trading it becomes dangerous and chances of loss become more . It is possible to take profit or loss in any trade so should be prepare for both any time.

I don’t think so. It’s back to the trader himself because there are traders who are ready to risk high in order to take high return too but this is not good habit also. It is okay for traders who had small amount of capital but it will be bad idea for traders with big amount of capital. In forex, the most important is not only how to make profit but how to limit loss too. I believe that it is better to keep consistency on profit although it’s not big amount of pips than gaining big profit but it can cause big loss in return.

It is the responsibility of each and every trader that they should have their risk assessment done prior to taking up the trades such that they do not lose more money than which they can not afford to lose.

I read something the other day that I quite liked.

Obviously you should only invest what you are willing to lose & in terms of how much to risk per trade, if you decided on 2%, it said to open a trade (SL & TP in place) & then just leave it for 1-week. If you’re anxious & want to or do check it, you are risking too much.

Trial this until you have an amount that you’re comfortable risking, whether that be 2%, 1% or even 0.5%.

Maybe ask yourself how much you can lose that you wont be so upset that you can still trade the next day.

I have set a loss limit in my trading which actually means that i will be able to limit my losses upto 25% of my trading funds at any given time :slight_smile:

It is good thing to limit your loss in every transaction and each trader can be different to set the limitation for maximum loss which he can afford to take in every transaction because different trader has different point of view and consideration. For me, it is too high to risk 25% of equity in single transaction. I think it’s better to risk not more than 10% in single transaction.

I love updating positions once a week. At first it causes anxiousness, but eventually you sleep just fine.

-Adrian

I agree with you. [B]The market does not care how much you can or cannot afford to lose[/B]. Small drops of water can sink a mighty ship. Even 1% risk per trade can still wipe out your big capital. One should focus on developing a good strategy that add more money to one’s capital than it removes; no matter how small. My own idea of stop loss is to place it where if it is hit then my strategy was wrong in the direction it thought the market is moving. eg last significant low/high. If you place your stop loss based on how much you can afford to lose don’t be surprised that price may often hit it and immediately start moving your anticipated direction.[B] Place your stop loss based on your knowledge and experience of market behavior not how much you can afford to lose[/B]. (that’s an opinion not a principle you can take it or live it)

This is so true. Someone risking 1% each trade but trading 5 trades a day could have a 5% loss in one day and subsequently have a 30% drawdown in less than a month. Someone else risking 2% per trade but trading 5 trades a month would only be down 10% on straight losses for a whole month. There has to be some thought put into that.

-Adrian

Someone risking 1% each trade but trading 5 trades a day could have a 5% loss in one day and subsequently have a 30% drawdown in less than a month.

That looks doable to me, but again, there will always be a risk.

It is good to risk only 1% of equity in a day because you will risk at most only 20% of equity when you lost 20 times in a row in whole month so it’s very low risk for trading but it will be harder to gain more than 1% daily too when you tried to set risk only 1% daily. It’s important for traders to know how much dollars which he could afford to take so they could risk not too high in every transaction.

If one can successfully grow an account at an average of one percent per day without blowing up, then he/she will do better than anyone ever. In less than five years he/she could turn a hundred dollars into a million. And in less than five more years, at a total of less than ten, he/she could hit over ten billion. Of course, the tax man would slow that down a bit, but a one percent per day return over ten years is unheard of. The risks associated with such a high target will ultimately end the endeavor with a fatal loss.

-Adrian

If you can’t afford to lose it, you shouldn’t be trading name with it

It is right that you should risk amount of dollars which you could afford to lose because if you risked more than your capability to take then it will make you feel depress and stressful then you can think negatively about the result of your trading although it’s only beginning on your career. Good trader must risk low amount of dollar first so you can learn from the mistake and you can understand the risk when you lost.

There are two schools of thought - one is that you need to get you’re feet wet, so that you learn to swim. This means trading with money that if lost - would actually hurt. The idea is that this will motivate you to be better.

The second is to always deposit a sum below your pain threshold - nothing that will alter your way of life or endanger your savings.

I’m with the second, as trading can be addictive and push you outside the boundaries of reason. Which manifests in depositing more and more, losing more and more before you’ve learned enough to make a profit or keep afloat.

This post was flagged by the community and is temporarily hidden.

Do not think you will not loose even you had best plan and skill. Loss is a part of forex trading. sooner or later we loose less or more. One had no courage to loose should not join forex trading. I know I can afford just 5% of my capital so I had to plan my trading according to this while trading. I take less than 5% risk so that I can not cross this limit if loose in trading.

Absolutely, I also follow this strategy! Sometimes, I don’t take few trades because of long SL levels, yes I am very much careful on risk reward ratio and healthy profit ratio, I am not interested on less than 1:2 profit ratio!