The secret of a successful trader
In our previous articles, we share a lot of how to become a successful trader. If you have missed out on those articles you may visit https://streetquants.com/insights/ to read about it.
In this article, we not only share with you the secret of a successful trader but also encourage you to test it out for a few months to see and feel the effect.
The top-secret of a successful trader is knowing how to manage your risk. There are many areas in risk management however in this article we just want to specifically focus on managing your risk per trade in a trading account. The popular advice is to risk only 2% per trade, it is indeed a practical approach. It probably sounds too common that most newbies take it too lightly. For example, if your account balance is $10,000 the 2% risk per trade will be $200. You may apply either one of the strategies below:
- Fix Risk Amount
Again, using the example of $10,000 in this approach your risk per trade will remain $200 (2%). You will not change if you lose. In this case, if you 50 straight losing trades to wipe off your account.
- On Account Balance
In this approach, your risk per trade will start at $200 (2% of $10,000 initial capital). Whenever you lose a trade your 2% will calculate base on the new account balance. If you lose a trade say your account balance now is $9,800. Your risk for the next trade will be $196 (2% of $9,800). In the event of you have 100 straight losing trades your account remaining balance is $1,326.20.
We encourage you to implement this simply in a demo account to try out. When doing this testing just purely focus on management and execution, any strategy will do. You may share your trading result with us.