risk management 1 % - but....

[forextrader3010]

Hey;

New to trading
I m wondering about the 1 % rule.
It s 1 % per trade. ok.

But if you execute 100 trades per day, you ve risked your whole account.

Ok. maybe 5 trades a day would be more realistic. but then you ve risked 5 % (5*1%).

The thing is, i m testing a strategy which i can execute once per day. So i m doing one trade a day. the win rate is pretty good so far. this week was 4/4 (monday no trading due to holiday);
The sample size isn't big enough, i know; but it s been tested by the creator for years. Also, there s a stop loss; but the TP is kinda executed "on the go"....
So, just wondering about the 1 % rule; as i m kinda convinced by this strategy (school run - DAX) and thinking about how much to risk per trade / day.

Thank you

 

[timsk]

Hey;

New to trading
I m wondering about the 1 % rule.
It s 1 % per trade. ok.

But if you execute 100 trades per day, you ve risked your whole account.

Ok. maybe 5 trades a day would be more realistic. but then you ve risked 5 % (5*1%).

The thing is, i m testing a strategy which i can execute once per day. So i m doing one trade a day. the win rate is pretty good so far. this week was 4/4 (monday no trading due to holiday);
The sample size isn't big enough, i know; but it s been tested by the creator for years. Also, there s a stop loss; but the TP is kinda executed "on the go"....
So, just wondering about the 1 % rule; as i m kinda convinced by this strategy (school run - DAX) and thinking about how much to risk per trade / day.

Thank you

You've pretty much answered your own question!
If you have 100 trades open simultaneously and you risk 1% of your account on each trade - then you've put your entire account at at risk. Not a good idea: your trading 'career' could be over by the end of the day! From what you say, it sounds as if you're only going to have one position open at any one time, (very sensible), so you're only going to risk 1% of your account. Note that 1% is the recommended maximum, it does not mean that you should always risk that amount. Ideally, your stop loss strategy will dictate that the trade isn't working and to close it long before the 1% maximum loss is reached.

Here are a couple of articles that explore this further - the first of which is written by Trader333 - one of T2Ws moderators. Enjoy!
Position Sizing as an Approach to Risk Management
What is Risk & Money Management?
Tim.

 

[forextrader3010]

From what you say, it sounds as if you're only going to have one position open at any one time, (very sensible), so you're only going to risk 1% of your account. Note that 1% is the recommended maximum, it does not mean that you should always risk that amount. Ideally, your stop loss strategy will dictate that the trade isn't working and to close it long before the 1% maximum loss is reached.

Hello and thank you.
I ll check that article.

yes, one trade per day on the dax.
I ve tried many strategies, but this one works best for me. Maybe it s because i m a beginner and it s pretty easy to execute.
Ok.
Tx

 

[forextrader3010]

Ok.
One question would be:

100 k Account.
Risking 1000 First Trade.
You lose.
Account Balance 99.000.
Next trade:
Risk 1000 or 990 ?
Like...1%...

 

[timsk]

Ok.
One question would be:

100 k Account.
Risking 1000 First Trade.
You lose.
Account Balance 99.000.
Next trade:
Risk 1000 or 990 ?
Like...1%...

990 - i.e. 1% max' of whatever is in your account.
If you risk 1,000 on every trade on the basis that that is 1% of your original account and your balance drops to just 10k - then you'll be risking 10% on the next trade - not 1%. That way disaster lies!

 

[FranziskaSchulz]

Hey;

New to trading
I m wondering about the 1 % rule.
It s 1 % per trade. ok.

But if you execute 100 trades per day, you ve risked your whole account.

Ok. maybe 5 trades a day would be more realistic. but then you ve risked 5 % (5*1%).

The thing is, i m testing a strategy which i can execute once per day. So i m doing one trade a day. the win rate is pretty good so far. this week was 4/4 (monday no trading due to holiday);
The sample size isn't big enough, i know; but it s been tested by the creator for years. Also, there s a stop loss; but the TP is kinda executed "on the go"....
So, just wondering about the 1 % rule; as i m kinda convinced by this strategy (school run - DAX) and thinking about how much to risk per trade / day.

Thank you

Well, that is a great question!
I try to use the 1-2% rule as well. But I suggest you do not overtrade. As you told it can ruin all of your trades.
2 suggestions, first try to place a specific number of trades and also try to set a specific amount for your profits/losses! I do them to avoid the problem you mentioned and about the strategy, it seems good!

 

[GeekyForex]

Hey;

New to trading
I m wondering about the 1 % rule.
It s 1 % per trade. ok.

But if you execute 100 trades per day, you ve risked your whole account.

Ok. maybe 5 trades a day would be more realistic. but then you ve risked 5 % (5*1%).

The thing is, i m testing a strategy which i can execute once per day. So i m doing one trade a day. the win rate is pretty good so far. this week was 4/4 (monday no trading due to holiday);
The sample size isn't big enough, i know; but it s been tested by the creator for years. Also, there s a stop loss; but the TP is kinda executed "on the go"....
So, just wondering about the 1 % rule; as i m kinda convinced by this strategy (school run - DAX) and thinking about how much to risk per trade / day.

Thank you

Risk when trading refers to the amount of capital that can potentially be lost on any one trade. This is subjective and will be determined to a trader's appetite for risk and should be set out in a well written and considered trading strategy. Generally speaking, no more than 1%-5% of capital should be at risk at any one time.

By means of example, if an initial deposit is made into an online trading account of £10,000 and a trader's risk appetite is 5%, the total amount at risk should be no more than £500. If more than one trade is placed, the level of risk should split equally between the amount of trades i.e., £500 risk over five open trades would allow a level of risk per trade of £100.

Risk is controlled by placing a stop loss order when placing a trade. A stop loss order will automatically close a trade once a pre-determined price point has been reached, this allows a trader the security of knowing that if a position moves against them, their losses are limited to a manageable level.

So it's not a case of multiplying your risk by applying the 1% rule to several open trades, but instead splitting the risk level between the number of open trades.