Thanks for sharing out this topic. Appreciate it.
I would like to add in some info as well hopefully it will help to those who may concern.
Having larger capital to trade is advantageous. That is why do not trade will small capital. Next question people will usually ask, how much capital is big enough?
- The answer, it depends on your trading system. If let’s say you are trading on a larger time frame like the daily chart. The stop losses could span through 200 pips or more depending on the pairs you are trading.
Balance: 100 usd
Risk : 1%
Risk in terms of dollar : 1 usd
Stop loss : 200 pips
Now to calculate the position size: 1usd / 200 pips (roughly) = 0.005 usd per PIP.
0.005 x 10000 units which is 50 units. Whereas in micro lots account, we are allowed to trade the lowest for 1000 units which is 0.01 in position size.
So in the scenario, we could not use the 1% principle mainly because of the small size capital.
- The idea of risking 1% or less is basically to open more trades.(this is dependable on the system that you are trading). More trades will generally means more chance for you to yield profit from the market itself. Please note that trades are made from your fixed system itself. Don’t do this for the sake of trading in a higher frequency. (Dependable also on trading system).
Example: 20 trades ongoing
Risk: 3% (in this situation i show higher risk as in to compare with lower risk money management)
Ongoing trades: 20 trades
Trades status : 20 trades are in red (half of stop loss which is 1.5 percent per ea loss and it happens)
1.5% x 20 trades = which makes 30% drawdown so to speak. If you are risking more generally it could be more since and you will definitely reach margin call if you overleverage your account due to small in balance.
Therefore your trade will be closed automatically by the broker without your trades closing by hitting TP or SL.
In a nutshell : trade with a bigger capital. It will bolster most of your problem.