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
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)
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. $0.
In both cases, winning or losing, you are better off using % on every trade, calculated on the amount of your account.
Great mathematical point, but i didn't mean fixed amount of money what i'm trying to say acceptable amount to loose and depends on your strategy
and for loosing streak 10 trades its not good sign of trading well there must be something wrong
what about if u have less capital,for eg : suppose a capital of 500$ or may be 250$.
then what r the suggestions.
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.