Manage Maximum Loss in Any Open Position
Each person's abilities are different. Likewise with the ability and readiness to bear also vary also. You must decide how much maximum loss you are willing to pay in a single trading session.
Why do we need and must calculate the loss before we start trading? So that we can keep the losses to a minimum. By determining a small maximum loss, your total float / margin trading will not decrease a lot if you suffer a losing streak and can still survive and restore the losses that have occurred.
Notice the following table. For example your Float trading is 100 million. Means the maximum loss you bear in a single trading session if your maximum loss of 2% is 2 million. Whereas 20% is 20 million.
The above example is for one time trading. That is in one trading session = 1 day you are trading. So in 1 day / 1 session in multiple trading times you only prepare 2 Million loss in a day, no more than that, if your Maximum Loss is 2%.
2% is a very tolerable number and is recommended by other professional traders.
Why only 2%? I think it's very little and if the percentage is bigger I can still call it. Wait a minute, do not take too little little things lightly. Even small things can make your life happy or miserable.
Let us illustrate the activity in one of the following trading sessions. You take Maximum Loss with maximal value of 2% of 100Million capital. And 5 times your first trading session loses in a row. Let's calculate.
-The first Trading session of 100 Million funds you lose by 2%. Means you lose 2 Million. Funds remaining = 98 Million
-The second trading session of your fund 98Million you lose a 2%. Means you lose 1.96 Million. Funds remaining = 96.4 Million
and so on until you lose and lose 5 times.
That is the count according to Maximum Loss 2%. Consider the following table with a different Maximum Loss percentage.
Well, you already understand it. What if you take a greater risk? Such as 20%. Indeed if you can and know the exact price will be where you can get rich in a day, but also will be very faster also to go bankrupt. With only 5 times lost your trading, your money will be 32.7 million.
You'll have to make a 300% profit to get your capital back up to 100 Million as it once was. By setting the Risk, you can minimize Loss and maximize profits. Do not ever think it's impossible we lose 5 consecutive first trading dal. Do not say it's not possible yet. All can happen beyond your expectations. So by arranging your losses with Maximum Loss, you will quickly adapt and become a professional trader.
Let's take another example with a smaller fund. Above we calculate the percentage loss by one day, this time we will calculate the percentage loss with the calculation of each open position. Why do we use percentage of each open position? Because this is often used by the majority of most traders.
Such as you have a $ 500 in trading account, then how many lots are safe to use? We try to use the lot per position with a percentage loss of 2%.
You have $ 500. 2% of $ 500 is $ 10. Each open position you set a Stop Loss of 50 pips. So if using 2% percentage with stop loss 50 pips, then the safe lot used is 0.20. Because if you suffer a loss of 50 pips, then your loss is $ 10 only ($ 0.20 x 50 = $ 10).
Then if in 5 consecutive times you experience loss, then the funds in your account is still $ 451.9.
Not bad if using 2% in every open position. Better than you use the calculation of margin endurance in using lots like 100 - 200 pips margin resistance only. It would be better to calculate the loss like this because it is easier for you to measure the calculation.
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