Today post i would like to write little bit about right size of your trading account and risk management. Because i found, that higher deposit with lower risk per trade is allmost all the time more risky than small deposit with higher risk.
I see, that it doesnt make a sense, but i will show you, what i mean.
At first i would like to present my results from one of my very small account, where i made more than 298% profit in less than 24 hours, its extreme example, how forex scalping technique can be profitable and i understand that deposit 7$ is extremely low, but i made it just for fun and to show you, that it is possible.
Closed forex scalps (trades)
Open trades at the end of trading session.
So deposit was: 7.67$, and the end equity was: 22.90$, so its around 298% profit.
I found out, that everywhere forex gurus writes about right forex money management, but don’t realise, that 2 percent risk per trade is not the best way how to setup your money management. I will create very simple example:
Lets say you have trader A, who deposited 100k$ and risk 2% per trade, in good trading series he will have 70% win ratio and 30% losses. If the trading series is 100 trades/scalps long, he will make:
1.02^70 * 0.98^30 = 218% profit
100 000 $ -> 218 000$
On another hand, if this trader will have bad trading series, his resuts will be like this: 70% losses and 30% profit trades.
0.98^70 * 1.02^30 = 56% loss
100 000 $ -> 44 000$
So at the end this trader A risk 56 000% for potential profit of 118 000$. It seems to be not so bad, but i will show you litte trick and better risk money management.
Lets say we have trader B, who risk 10% per trade, has the same winning ratio in good trading series like trader A. But he will not deposit 100k$, but only 10k$.
1.10^70 * 0.90^30 = 3 347% profit
10 000$ -> 334 700$
In bad trading series, it will be vice versa:
0.90^70 * 1.1^30 = 99% loss
10 000$ -> 100$.
So as you can see, who risk more? In percent point of view, trader A risk less, but in reality risk much more, because he stake 56 000$ for less profit potencial than trader B, who risk in reality just 9 900$.
In reality its just much more complicated, but i think that if you will think about this for some time, you will realize, that way B is much more better. And in my own forex scalping trading strategy this money management is the way, which i go. And it is one of the main reason, why im still in profit at forex markets, which are really compentative.
In one of my future post i will try to write about this topic little bit more.