Hi!
Might be a confusing title, but here’s the question a bit more in depth…
Let’s say I have 1000usd capital.
I place a trade with 1% risk, based off my 1000usd, in other words 10usd risked.
I still have money left I want to trade with, so I place another order… Do I base my risk % off my remaining capital after having placed my first trade, or do I base it off my new temporary capital (considering I have just put money into another trade)?
In advance, thanks!
ok, let’s get the terminology correct first
Capital = ACCOUNT BALANCE
Temporary Capital = EQUITY
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you should not be deciding this after a trade is placed, this should be decided before the trade is placed
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you need to work out HOW MANY MAX CONCURRENT TRADES YOU WANT TO TAKE ON
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you need to work out your Max Risk… so let’s say that’s 1 % of your ACCOUNT BALANCE,
this then means that if you are prepared to put down NO MORE THAN 4 trades
you are risking 0.25% per trade
because if you place a trade down (let’s call it Trade 1) and you have calculated that trade 1 is consuming 1% of your Account balance
and let’s assume you have factored in the MARGIN that is required for the trade as well… so it’s A TRUE 1% risk
and that you have calculated that given your lot size and distance to your stop loss THAT YOU WILL NOT EXCEED 1%
ok, so now when you place TRADE 2, you COULD base it off your ACCOUNT BALANCE, but this not a real representation (as you probably know) because , THE ACCOUNT BALANCE will show you the last balance , not including any current trades that are in a loss but still running
so… you then think
ok , martin… so go off EQUITY then
YES… this is a better option, but it keeps changing… right
so maybe go off equity but HALF THE EQUITY that is currently displayed
so let’s say equity is saying you have $912
well. half that so round off to around $460 ish now do 1% of that
but even if you do this, YOU ARE STILL RISKING MORE THAN 1 % over all
which is why you need to plan this stuff out before you place it
does that help
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