Am I on the right track - Money Management Question

wino59

Active member
126 12
Alright so I understand the basics of Money Management....Not to put more that 10% into any one trade or position etc.

But here is my question... I am using a very simple trading system. It clearly defines entry and exit points, and it is a 1:1 risk to reward, and 1:2 reward for more aggressive traders.

Instead putting a percent of account on the trade.... I am keeping all trades an equal value.

So for example if the price target is .25 move and I want a $100 profit per trade, then I would buy 400 shares regardless of price of the stock... However if my stoploss is triggered I am only out a $100, regardless of the price of the stock...

The big difference comes in on the price of the stock.... 400 shares at $10 is $4k, and 400 shares at $40 is $16K, big difference, however the profit and loss is the same for both.

So my question is.... since the risk and reward is the same for both trades, does it really matter how much of my account is used to place the trade?
 
M

member275544

0 0
Alright so I understand the basics of Money Management....Not to put more that 10% into any one trade or position etc.

But here is my question... I am using a very simple trading system. It clearly defines entry and exit points, and it is a 1:1 risk to reward, and 1:2 reward for more aggressive traders.

Instead putting a percent of account on the trade.... I am keeping all trades an equal value.

So for example if the price target is .25 move and I want a $100 profit per trade, then I would buy 400 shares regardless of price of the stock... However if my stoploss is triggered I am only out a $100, regardless of the price of the stock...

The big difference comes in on the price of the stock.... 400 shares at $10 is $4k, and 400 shares at $40 is $16K, big difference, however the profit and loss is the same for both.

So my question is.... since the risk and reward is the same for both trades, does it really matter how much of my account is used to place the trade?

why not put this in a less theoretical perspective..you buy your 400 shares in HMV.
NO stop, no ability to close..how much have you lost now?
 

wino59

Active member
126 12
why not put this in a less theoretical perspective..you buy your 400 shares in HMV.
NO stop, no ability to close..how much have you lost now?

Excellent point... I suppose any trade you could lose all you put into it. I hope to minimize exposure to those scenarios.

My trades last 3 days at the most, usually hitting on the 1st or 2cd day, and then I am out... Also I only trade US stocks, that have high volume and are liquid, otherwise I stay away and move on to the next trade.

However what you mentioned was something I didn't consider.. Thanks
 
 
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