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Chapter 33, Part I. Risk Management Framework. Page 7

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: This is also some insurance for some case if something will change in the trading system or style, so that the trader could not support the same performance and it will become worse. Particularly due to that reason we advise you to risk not more than just 1.5 % of assets in each trade. This will allow you to make 66 losing trades in a row before you will devastate your account. That is a sufficient balance, since we hope that you will get the point that something is wrong if you will make 10-20 losing trades in a row. A wise trader understand that he/she will not win every trade, so he/she has to plan risk so that there will be some reserves for really bad times.

    Pipruit: Sir, some idea has come to me, I’m just wondering – since our assets becomes lower with each losing trade – should we apply the 2% rule for initial assets value or to current assets value? In other words, should we reduce trading lot size if we assume that stop-loss distance will remain constant?
    Commander in Pips: Well, although we have shown simplest way, actually you’re right. You have to risk a smaller part of your assets, if you have lost something already. In fact, your percent risk will remain the same, while your dollar risk will become lower.

    Pipruit: But sir, in this case it will be much harder to return all loses back, since with smaller positions we will have to earn more pips to return previous losses.​
     
    #1 Sive Morten, Dec 28, 2013
    Lasted edited by : Oct 9, 2016
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