This is basic stuff.
Let’s re-capitulate. Let’s suppose -
your strategy has a win rate of 60%
it has a r:r of 1:1
you risk 1% of cash in your account per trade
your total account is $100,000
you make no withdrawals (or new deposits)
you start trading on the first market session of the year and you trade on 250 days.
At the end of the year, what is in your account?
Hold on you gave the example of risking 1000 on each of you 5 trades just at 1:1 so would this be 1lot with 100 pip sl and 100 pip tp how else you getting 1000 of each trade maybe 2lots with 50 pip sl 50 pip tp yeah. ?
I get that 3 wins minus 2 losses = 1000 or 1% making total after 250 days = 350.000 balance
Please stick to the question.
Tommor your exampe does not make any sense.
I would have to know how much money you are making on every trade to know that.
For example if you are making a 1000 dollars on a 1000 dollars every time you loose 2000 and make 3000 you are making 1000. Fair enough. You would still have to make 1000 dollars out of a 1000 dollars. That is unrealistic. You would have to use a lot of leverage to do that. Is that what you are doing?
OK, I think you’re thinking this is harder than it really is.
So, you are risking 1% of your account per trade. With a 1:1 r:r you are obviously losing 1% per losing trade and making 1% per winning trade.
You start with $100,000 in your account. At the end of Day 1 you have experienced 2 losers and 3 winners. How much is in your account to trade with on Day 2?
Maybe you could explain what he means A1lenTrader.
No risc reward is a way to measure how much you make on a trade in comparison to how much you could loose on a trade. Obviously if you are trading with a 100.000 dollars you could make either 100.000 dollars or just 1 dollar, or any other amount, and still have risc reward of 1:1, depending on that trade.
So I don’t see how you could make that to be 1 percent? I could make any amount of money using risc reward of 1:1. I could make three percent on my money, I could make five percent on my money as well as any other number. Depends on the trade.
If you are taking a trade with a 1000 dollars(1% of your account size which in this example is 100.000) and make 100% on that money intraday, one day… Then yes, you would have increased your account with 1% overall that day. Since 100% on 1000 dollars is 2000 dollars. 99000+2000=101.000. Now you have increased the account size by one percent. Now my question is if people really are doing this becuase it is highly unlikely to make 100% on your money 250 days every year without very high leverage.
My thinking is that you have to concentrate much more than that to realistically increase your account substantially.
OK, so now we have the subsidiary answer, to the question as to how much money do you start Day 2 with - $101000.
So for Day 2’s trades, your 1% risk is now $1010. Again, you run 5 trades, 2 lose, 3 win, and the losers are the same size as the winners. You make a daily profit of 1% of your day’s starting capital, so for Day 3 you now have $102010.
Never mind giving the exact number, please just give a Yes/No answer -
At the end of Year 1, will you be a millionaire?
Please read your own explanation again and then read my answer. I don’t think you understand my questions because your answers don’t differ
You would only have 101000 dollars the second day if you made 100% on your money the first day which equals= highly unlikely
Oviously if I could increase my account one percent every day that would become an astronomically big amount after a year or so.
Again, to increase my account size by only using one percent every day to trade with, and only riscing 1000 dollar(one percent of 100.000) I would have to double my money every day to make one percent per day. That is highly unlikely
You say that on day 2 I have 101000. That means that you made 100% on 1000 dollars the first day. Since you were only riscing 1000 dollars(one percent of 100.000). That is highly unlikely
Yeah i get what his saying practice it on your demo see how it works out.
Work out how you would achieve 1000 profit of each trade then make 5 trades each day or 10 see if it works out.
Just to go back a few steps, do remember that you’re the one who posted on the forum that you can’t understand how traders can make enough money, and now YOU are telling ME how to trade. And you on a demo account!
Let me just leave you with the thought that perhaps you don’t fail to understand because the question is hard, maybe its possible you fail to understand because you will not learn.
Good luck to you.
@tommor.
Neither me or MartinNn are questioning your ability to trade or telling you how to trade. I simply was asking how you make 1000 of each trade do you use 1lot 2lots etc… But that is your business i suppose and MartinNn is not familiar with how it all works so maybe a little sceptical which in it’s self is not a crime.
On your demo deposit 10.000 @ 1:500 leverage and use 1lots with a stop loss of 50 pips and tp at 50 pips then in 2 weeks post your results.
From what I have gathered, FX traders typically make significant money by trading with a large account size and/or utilizing leverage. How much and/or by how quickly those account sizes grow can vary, as some traders may even take on investor money once they really know what they are doing and have proven themselves.
Leverage can be used to magnify returns, but the other use for it is to limit risk and free up capital. Obviously, with leverage, you take on risk, but the idea is that you do not have to risk as much of your account balance as you normally would for the same size trade, whatever that amount may be. So, if you wanted to open a 100k position, for example, then instead of risking 10% of your account balance to do so (assuming you had $1 million to trade with), you could risk a small fraction of your account balance to open the same size position by utilizing leverage, therefore, limiting what you could potentially lose, while also allowing you to free up money for other trades.
Once your account grows in size, then you may not feel the need to use leverage anymore, as you may be able to make decent returns without it. Risk is subjective. What you may consider as high-risk may not be for someone else. You may think that 1% of total balance per trade is the maximum that you are willing to risk, while someone else may be okay with risking 10% or more per trade. You have to learn what works well for you and your trading style; do not adhere to some rule unless it makes sense for you.
You mentioned day trading. I suspect that many day traders may adapt their trading style over time, by eventually gravitating toward higher time-frames, since they no longer have to grind so much in order to grow their account and make really nice returns. Not all day traders do this, but some do. Trading on higher time-frames allows you to see bigger returns per trade than you would normally see if you were day trading, but it /can/ take longer to realize those returns.
Some traders that are just starting out (or starting over) generally try to grow their account quickly, so they gravitate toward the smaller time frames. It can carry more risk, but it can expedite things for some. Not all traders start with day trading, though. The higher time frames carry more significance with regard to market direction, support and resistance etc., and may be considered less risky as a result, so some traders may prefer that, especially if they do not have time to monitor their trades constantly. Some seasoned traders may even say that the smaller time frames are only traded by newbies, but I know that there are some very successful, seasoned traders that still prefer to day trade on the smaller time frames (but they also know what they are doing).
You mentioned compounding. Compounding can be very powerful, but it is also important that you learn money management early on. Part of that might entail pulling a percentage of funds out, periodically, and setting that money aside or investing it elsewhere…especially if you are not utilizing a large percentage of your account balance to trade with. Not only would this allow you to put that idle money to use, but it would limit your exposure to potential risk, in the off-chance that your broker decided to bail. Simply put, have a good plan…even if you are using play money and treating this more as a hobby; it is better to establish good habits and proper money management. Similarly, if you are trading on a demo account, always trade as if you were trading with real money and treat every trade seriously so that you are able to condition yourself and your thinking.
Haha no offense man 
I was in a bad mood because I had trouble understanding this rule. Problem is I am profitable but I don’t understand this specific rule. I trade mostly stocks and am much more concentrated in that area. I am new to Forex and I see a lot of people talk about this rule in the Forex community, but not so much among stock traders.
Sorry for being an asshole but many traders are
Godd luck to you as well and thank you for your patience
Good post Methos.
Yeah that is what I was thinking, sort of. It makes sense if traders are using 1% of their account balance and then lever up that amount. So they could only lose one percent on a trade. If I were to use leverage of 1:5 those daily returns could of course ramp up a bit.
But with some brokers it is only possible to use leverage when you buy more lots than what your whole account size allows for. Otherwise leverage automatically does not set in.
Do you know where the sweet spot for leverage is for traders in general that are trading this way(the one percenters)? I have heard that many use 1:3 as their highest limit.
I know this is impossible to answer but among proffessional traders that you know, what is a recurring overall percentage in general?
To be honest, I think that this will vary greatly, depending on many factors. As you say, not really possible to provide any definitive answer. Most of the professional traders that I have come across, do not share specifics regarding leverage. The reasons for this may be many, including the fact that each person’s trading style, risk tolerance and goals may be different. Additionally, account size, which type of assets are being traded and on which time frame(s) etc. may vary from trader to trader.
I come from a cryptocurrency background, so for example, according to the CEO of BitMex (which is currently the largest cryptocurrency exchange by trading volume, I believe), most traders on that exchange use 1:8 leverage, on average. That being said, I know that there are many traders that use more than that, with some even using 1:100. I believe that there is even an online source that publishes account liquidation statistics for that exchange somewhere. But to say that the majority of traders that trade via BitMex are professional traders would be impossible to determine. I would venture to guess that they are not. But we would also need to know how we are defining ‘professional’.
I would assume that the amount of leverage may change for traders, as their account size grows, but that would likely depend on their overall goals. If you are aiming to build up a multi-million dollar account, then your methods for getting there would likely differ from that of someone that is only looking to make regular profits each month.
Ultimately, you will need to assess your risk tolerance, define your goals and determine what method(s) will best suit your trading style for the long-term. I would imagine that these things may change over time.
Look at like this, If i had leverage of 1:30 it costs me about £3.330 to open a 1 lot on gbp/usd
Now if i used 1:500 leverage it would cost me £200 !
I can only afford to put £1000 max into a broker so if a 1 lot went against me 50 pips that’s half my balance gone and margin call.
If i had 10.000 @ 1:500 i could do alot more.
I will also say it is quite unrealistic the calculation that is given no body can make profit with 1:1 ratio it is difficult to invest such a big amount . Risking thousands of amount one time in trading will be a big dangerous. Inforex we get benefit of leverage we just use less than 0.5 percentage of amount for risk taking . I also admit our loosing trades are more not as are mentioned we gain in two trades and loose one.
I think we have different definitions of risk. Naturally I believe mine is correct. Here’s a question -
you buy 100,000 shares at $1 each
you set a stop-loss at 99 cents
what is your risk? - a) $100,000, b) $1,000
Day trading is one of the mostly used trading strategies in he present time. However, I personally think that scalping is actually better for me as I am a new baby and I have lower trading amount to invest.