which is better risk a fixed % or amount of money?

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Mohammed Mounir
1009
Mohammed Mounir  
I think it depends on the strategy that you trade with, for me i use amount of money that i can accept it for loosing 
Eleni Anna Branou
Moderator
8466
Eleni Anna Branou  
A fixed percentage is a better way of money management and risk control.
Keith Watford
Moderator
15394
Keith Watford  

I think that % of balance/equity can work against you

Keeping it simple, say you are risking 10% per trade and your R:R is 1:1

Starting balance $1000

first trade loses so you have lost 10% of 1000 (100)

Balance is now 900

2nd trade wins so you have won 10% of 900 (90)

Balance is now 990

So you have a 50% win rate with R:R of 1:1 yet you have actually made a loss


Starting balance $1000

first trade wins so you have won 10% of 1000 (100)

Balance is now 1100

2nd trade loses so you have lost 10% of 1100 (110)

Balance is now 990


It doesn't matter which order the wins and losses happen, you still make a net loss whereas you would expect to break even with R:R of 1:1
Mohammed Mounir
1009
Mohammed Mounir  
But i think it will be more accepted to calculate the amount of money you can loose 

And focus on great signals to enter the market
whroeder1
17909
whroeder1  
Keith Watford: It doesn't matter which order the wins and losses happen, you still make a net loss whereas you would expect to break even with R:R of 1:1
Of course.
  1. Loose 20% it takes 25% to recover.
  2. Loose 50% it takes 100% to recover
  3. Loose 90% it takes 1000% to recover.
Josip Vukelja
242
Josip Vukelja  

Hi, from a mathematical point of view % based trading is better. Let's assume you have $1000 and risking 10% per trade ($100 on the first trade). 

If you have a winning streak 10 trades: your account will grow like this: 1100, 1210, 1331. . . . .$2358 after 10th trade.

 

If you have a losing streak 10 trades: your account will get smaller like this: 900, 810 ...... $387 after 10th trade.

 

Using fixed amount, let's say $100 per trade will get you $100 x 10 trades = $1000 (you will have $2000 in total)

If you lose 10 trades in a row you will be broke. $0.

 

In both cases, winning or losing, you are better off using % on every trade, calculated on the amount of your account. 

Mohammed Mounir
1009
Mohammed Mounir  
Josip Vukelja:

Hi, from a mathematical point of view % based trading is better. Let's assume you have $1000 and risking 10% per trade ($100 on the first trade). 

If you have a winning streak 10 trades: your account will grow like this: 1100, 1210, 1331. . . . .$2358 after 10th trade.

 

If you have a losing streak 10 trades: your account will get smaller like this: 900, 810 ...... $387 after 10th trade.

 

Using fixed amount, let's say $100 per trade will get you $100 x 10 trades = $1000 (you will have $2000 in total)

If you lose 10 trades in a row you will be broke. $0.

 

In both cases, winning or losing, you are better off using % on every trade, calculated on the amount of your account. 

Hi Josip,

 Great mathematical point, but i didn't mean fixed amount of money what i'm trying to say acceptable amount to loose and depends on your strategy 

 and for loosing streak 10 trades its not good sign of trading well there must be something wrong  

anurag bhargava
568
anurag bhargava  

what about if u have less capital,for eg : suppose a capital of 500$ or may be 250$.

then what r the suggestions. 

whroeder1
17909
whroeder1  
Mohammed Mounir: loosing streak 10 trades its not good sign of trading well there must be something wrong
Not wrong, just randomness. You will see 10 in a row, sometime.
I've had 13 wins in a row in the casino, twice; initial $5 bet, cashed out for $3500.
That is why you have drawdown. Why you shouldn't risk more than 2% on any one trade. And why Martingale will blow your account.
Mohammed Mounir
1009
Mohammed Mounir  
whroeder1:
You are right if the trader is gambling as playing in casino 

For Martingale is nightmare strategy as if the market trend went in one direction for large amount of pips it will blow your account, and if you check the history of currencies there will always be high trend direction due to currency policy
Not wrong, just randomness. You will see 10 in a row, sometime.
I've had 13 wins in a row in the casino, twice; initial $5 bet, cashed out for $3500.
That is why you have drawdown. Why you shouldn't risk more than 2% on any one trade. And why Martingale will blow your account.
Josip Vukelja
242
Josip Vukelja  
Mohammed Mounir:

Hi Josip,

 Great mathematical point, but i didn't mean fixed amount of money what i'm trying to say acceptable amount to loose and depends on your strategy 

 and for loosing streak 10 trades its not good sign of trading well there must be something wrong  

Hi Mohammed,

 I agree with you, nothing is 100% black/white in trading and it is very important to trade with a risk (amount of money) which doesn't affect your trading decisions.

I have used a 10% rule i.e. for a sake of simplicity, but the concept is correct.

 I believe that risk apetite should be defined after back test of the strategy, this is the best way to understand what can you expect trading something thru the year.

 

Loosing streak of 10 trades happened to 99% of profi traders, so be sure it might happen to all of us sooner than later.

 Personaly, I like to start with 5% of risk on a first trade, and I keep that fixed amount of money untill I double my account. So hopefully, after some time and profit, your initial 5% is getting smaller and smaller.

It all depeonds from strategy to strategy and personality to personality. Nothing is set in stone in trading IMHO.  

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