Ok, I’ve gone through the pipsology courses and really took on board the money management aspect of trading.
Quote Pipsology Money managment: “Trade only a small percentage of your account. The smaller the better. 3% or less is recommended.”
I’m a little confused on how one executes a trade for fractions of your total bankroll. Eg: I have a total of $100K in my account and I want to enter the market for 1% of my total core equity which = $1000. My question is how does one execute an order for the amount of $1000 from my $100K account. I don’t see an option on the trading platform ( I use MT4) to allocate portions of the total core equity for individual trades. It seems to me each time you enter a trade you are doing so with all your funds. So, it looks like the only real way to simulate the $1000 trade is to place a stop loss order for that amount. Is this correct?
The 3% recommendation is the amount of your account that you would risk. Your risk is your Stop Loss, not the cost to enter the trade.
So, you have to do a little calculating:
Account balance: $100,000
Risk (3%): $3,000
Assuming a standard lot worth $10/pip (it depends on the currency pair you’re trading, of course), then you divide $3,000 by $10, which gives you 300. That means that you can risk a 300 pip Stop Loss on your trade.