Traders often base their risk only on the trade they’re about to take; they don’t think ahead.
What do I mean by this?
What I’m trying to say is that a trader might be okay with risking 2% per trade… Meaning he / she is willing to lose 2% of his / her account on a trade. But how will this trader feel when the account is down 6, 8 or 10% after a couple of trades?
Let me explain:
For this explanation I assume three losing trades in a row with different amounts of risk (as a percentage of trading account) for each scenario.
Scenarios:
- 0.25% (risk) x 3 = 0.75% of account
- 0.5% (risk) x 3 = 1.5% of account
- 1% (risk) x 3 = 3% of account
- 2% (risk) x 3 = 6% of account
- 5(risk) x 3 = 15% of account
- 10 (risk) x 3 = 30% of account
First off, don’t ever think that you will never lose three trades in a row. Also, I just used three losses in a row here as an example, but don’t assume that’s the limit. More is most definitely possible.
With the above in mind, how much risk will you be comfortable taking per trade knowing you could lose three or more times in a row?
Finally:
It’s normal to think about how much money you can make on the trade that you are about to enter. That’s how trading is introduced to most of us… about how much money you can make, not how much you can lose. No trade is a sure bet… so think ahead and risk accordingly.
Thanks so much for reading. Hope you and the family are well and safe.
Thanks and Regards,
Trading SOS SOS