Money managment

exceptional site from Uni Linz, Grey1! i think any newbie shud have to sign he read and understood it b4 placing his 1st trade :)
 
ok - my humble opinion on that Uni Linz page:

exceptionally good. I completely agree that EVEN IF u toss the coin entering the trade but manage yr trades properly u will be making money.

where I disagree tho - i do not think that any set of indicators is like tossing the coin. it is all about odds innit? :) I'd say 1) good set of indicators skews the odds in yr favour, as much as 75/25; 2) psychologically it adds to trader's confidence which is the main thing. U cant trade if u r not confident u r the best :)
 
Margin - Consideration in Position Sizing

As a Pattern Day Trader (soon - not just yet) I'm aware of the minimum balance and other rules etc., but only just realised I get X4 margin.

So, for arguments sake, say I have $50K deposited in my broker account and I use a 1% risk size.

Do I calculate my risk size on my cash holding ($500) or on my overall margin amount ($2000)?

My preference (more risk averse than not) is to only trade cash.

But more importantly - how do you guys handle this?
 
Bramble,

On your cash holding, otherwise your risk becomes 4X what you want.

Think of it in these terms, if your cash = $50,000 then taking full advantage of margin your maximum trade size = $200,000. If you stake $200,000 and the stock falls (or rises if short)1% you are down $2,000 rather than the $500 you wanted - oops!

LII
 
Tony - I agree with you. I trade my cash balance.

In your example of risking 1%, you would in fact be risking 4% of cash if you used your margin balance on which to base the 1% on.

If you risked 5% of your margin balance, you would be risking 20% of your cash balance (yikes!).
 
Bramble,

On your cash holding, otherwise your risk becomes 4X what you want.

Think of it in these terms, if your cash = $50,000 then taking full advantage of margin your maximum trade size = $200,000. If you stake $200,000 and loose 1% tou are down $2,000 rather than the $500 you wanted - oops!

LII
 
bramble - its always cash mate. margin is not a tangible thing, in a way it is like an option :) - it is a RIGHT given 2 u by yr broker to exceed yr cash deposit by say 4 times. what matters is CASH P&L.
 
nice description me old China

Rognvald - see below - Ive tried attaching what I think was there as a download. (email wont allow attachments)
 

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I hope you'll find the following article of some interest.
 

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