Newbie Stop Loss Question

[Ljhoward84]

Hi all,

I'm new to the forum and to the world of trading and am hoping someone can shed a bit of light on a stop loss headache i have. I'm currently playing around with a virtual etoro account and using the free version of trading view for charting (this won't be my permanent "setup" but it will do for now!) I'm primarily looking at stocks and crypto, not so much forex. My question is to do with calculating stop loss in relation to risk.

I understand that you should only ever look to risk 1-2% of your account per trade. I took this rule of thumb as referring to the actual size of the trade. For example, if i had a $10,000 account then the largest trade i should ever look to open would be $100 (based on 1% risk).

However, if i was to set a stop loss to kick in when, for example, the trade loses 10% then in fact i'm not actually risking 1% of my account with the trade, I'm only risking 0.1% (because in this example $100 trade the worst i'll ever lose is $10, the other $90 is protected by the stop loss).

Have i misinterpreted the concept of "Only risk 1-2% per trade"? Is this guidance based on the assumption that you don't always use a stop loss (in which case, the whole $100 / 1% is "at risk")?

Any assistance would be warmly received. I'm sure it's an easy answer but I'm having one of those days!!

Thanks in advance

LJ

 

[The Cube]

You would place you stop loss at the point where it would lose your 1% (or whatever % is your max loss for that trade).

You must also then think about your next trade if you've lost, because if you lose 1% you need 1.01% to break even. This looks small so think of it on a bigger amount ; lose 10% and you need 11.1% to break even; lose 20% and you need 25% to break even etc...

 

[momo3HC]

Your risk percent (1% in example) equals the sum which you will lose if your SL is hit. I hope it`s clear enough.