Since we are on the topic of position sizing and risk percentages, traders
often make the mistake of risking inconsistent amounts. Either they believe
in one trade more than another or they are just terrible at calculating
their position size. Either way inconsistent risk per trade will kill your account
over the long run. How much you decide to risk on each trade is a
personal tolerance, but whatever you risk, ensure that you are consistent
trade to trade, month to month. If you are not consistent with risk, one single
trade could wipe out all your gains, or as Table 4.5 points out, your winners
might not overcome your losers. Risking inconsistent amounts could
actually lead you to a positive gain in pips but a loss in capital.
Table 4.5 illustrates the effect that inconsistent risk can have on your
trading capital over a series of 10 trades. In the first example, the trader
risked between 2 percent and 8 percent and ended up losing $46.54 of his
trading capital. In the second example, the trader consistently risked 2 percent
of her account and gained $115.06 to her trading capital. Both traders
made the same winning trades, but only the trader who applied risk consistently
ended up making money.
No comments:
Post a Comment