Try this https://www.optionseducation.org/
Words of wisdom?
I am new to trading.
Is there an optimal; leverage, Trade margin/capital, SL (stop loss) calculation method?
Thank you for the link. Bookmarked for further education.
I hope this does not cause confusion. In order to define “optimal”, it needs to make reference to your overall goals. In terms of risk management strategy, the holy grail is to determine the highest return on investment for the least drawdown on the funds in your trading account (or the funds you have allocated to trading even if all those funds are not in your trading account(s) with one or more brokers.
By example I will give two extremes. The first is that you open an account with a broker that allows 100:1 leverage with $1,000. You decide to put all your money on one trade and set a 100 PIP stop loss with a $10 per PIP trade size. Your take profit is 150 PIPs. Your trade succeeds, and your $1,000 is now $1,500 (a 50% gain). Next similar trade, you lose and the price hits your stop loss. You have lost $1,000 and your account size is now $500 (you have lost 50% over two trades - a 50% gain and a 100% loss.
Second example. You decide to risk only 1% of your capital to trade, and that is $10. So you enter a trade with a 100PIP stop loss with a $0.10 per PIP trade size. You lose. Your account is down only 1% ($1,000 - $10) at $990. You live to fight another (hundreds of) day(s).
Bottom line, the more of your account you decide to risk on each trade, the higher your account drawdown is likely to be. Most traders settle on an extreme range of 0.5% to 5% of their trading account, depending on how aggressive they want to be. I’d start off using 1% and if you are demonstrating a positive edge (your account is growing) move to 2%
Yes, there is optimal levels which will suit your trading style. I’m an intraday trader.
My leverage is 100:1 which is the maximum I use, and that gives me the option to trade between micro lot sizes of 0.08 to 0.2 on my $2,000 live account. I keep risk per trade at a constant 1%, and never exceed 5% of total open trades, nor more than two correlated pairs at any one time.
The benefit is that I have been able to provide breathing space for my S/L which I set in two ways - either at the last ball of the PSAR, or the daily range number on the ATR on the 1 hr chrt.
Risk exposure is critical - it can make or break you, and I am a ruthless hands on money management trader. I WILL cut losing trades early before the market confirms I got it wrong, and let winning trades run by moving up the S/L to breakeven.
However, on a pair like GBP/USD, I’ll leave my S/L and T/P at 1.5 well alone if it’s trending and breaking out of a zone. Why? Because the retracement waves are rough and ready the whole time. You certainly don’t want to suffer a heart attack before either targets are hit.
hope that helps…
Is it an offshoot of tastyworks? If I’m not wrong they too primarily deal with options trading.
Even I think that will give the required boost as in the end, the number of profits should be more than losses. If one is at that level,they are doing better than the rest of the traders who are struggling to make a single penny.
This is what I also follow. In fact, I never risk more than 2% per trade. I have had a hard time earning from my previous job and I can’t let it go so easily. 50% is a very high risk that @Brian here has been taking.
Exactly what I believe! It’s true that risking more will get you better profits. But that shouldn’t come at the cost of you risking everything you have. Trading is a risky business and you do well when you can save money to trade for a longer time. Trading today and not being able to trade for the next whole year won’t make anyone a profitable trader.
I would call you lucky because you have been making steady profits after risking this much money. But that doesn’t mean that it is how it should be done. You must think of trading for a long time instead of now or never.
50% is a big amount to be risked per trade. You are the first trader who has been doing this for quite a while and still trading. You would be really lucky with your strategy. But this is not what most traders would recommend. It’s risky and can destroy your career. Sorry for being rude!
I believe that’s what any smart trader would do. While we were learning, we read it several times that we should not risk more than we can afford to lose and that probably comes in the range of 1% to 5% per trade. Talking about calculating take profit and stop loss, the simple formulas I use are:
Take Profit = opening price + price change in points.
Stop Loss = opening price – price change in points.
5% per trade is way too high and the fast track to blowing your account. If you have four open trades at that risk it would be risking 20%. And believe me, consecutive losing trades are quite common as are profitable ones. I lost 13 different consecutive trades on one day that taught me a lesson which took me months to get back to profitable.
I would suggest the reading should have meant not more than a 5% daily risk maximum, which could be manageable.
I completely agree with you. As long as you can measure the risk, you can manage it. You should not risk more than a small percentage of your total capital. I think 2% is a good percentage to start with. This could mean that you can be wrong several times before you blow up your account.
I like all the suggestions given by other traders because they are proven and tested. One thing more that I would like to add to this is that as a trader, you will have to take the responsibility for your decisions and trades. Losses are a part of the whole process and you must learn to accept them. If you are losing, it doesn’t mean that you are failing. But you fail when you can’t take a loss quickly.
True that! I have seen many traders losing because of the wrong mindset. For every trader, it is important to work on their own habits and be honest so that you can acknowledge the times when your ego got or greed got in your way of making the right decisions. When someone says, you should control your emotions while trading, they have seen the consequences and are trying to help you so that you don’t make the same mistake.
It is a big mistake even though the risk is spread between different currencies. It is totally unsafe and you might end up losing all your funds in a single day. You should revise your trading strategy.
Ya mate, been revising after such heavy criticism i been getting, it’s obvious then that it’s not right. I need a mentor!!
A trader who accepts loss with grace is often the one who grows. While trading with turnkey forex, I learnt the importance of keeping a trading journal to objectify my trades and mention why I entered or exited a trade. This helped me determine how effective my trading system has been. I have also tried to go with the flow while trading with avatrade to stack the odds in my favor and take advantage of more profitable trading opportunities but never overlooked the fact that I can also make losses if something is not in my favor.
Is keeping a trading journal really worth the effort? All the extra work and discipline other than trading, it’s difficult to take out time and maintain all the data isn’t it?