The point of money management is to maximize profits in the totality of trading situations and trading decisions made. Based on the principles of money management, a transaction can be cancelled, the entry point adjusted, and the exit point adjusted. It is incorrect to determine the stop loss level by money management; it should be determined by the chart and only by it.
In order to determine whether you need a deal or not, and if you do, what you are willing to risk, you need to compare the estimated profit on the deal and the likely risk. The higher the profit or the lower the risk, the more attractive the deal, the larger the position should be opened.
The system has two entry points (read more about the system via the link in the profile header, where I talk in more detail about the DFVA trading system).
Entry points are based on different assumptions and initially have different predicted probability of causing a quick loss. The second point is more risky. Therefore, the profit on it is always strictly fixed and must be no less than 1 to 6 (for one unit of risk you must receive at least 6 units of profit). Unlike the second point, entries from the first may initially have a lower profit-to-risk ratio. Entry at the first point is justified if the probable profit exceeds the risk by at least twice. If the ratio is worse, it is better to refuse the deal.
Human life is short, you have very little time to earn capital in the market, spending years on demo accounts or real small deposits and micro-volume entries is an unaffordable luxury.
At the same time, risking large sums at once is stupid. Therefore, I am a supporter of starting with small amounts for yourself, but taking conscious risks.
For example, I consider the normal level of risk for all open positions for a small deposit to be 10%. Those. in the worst case, you will lose a tenth of your capital.
This level of risk can provide rapid capital growth if you make good trades.
It is also possible to lose this deposit, but the probability of this is small, in addition, the deposit, I repeat, should initially be insignificant for you. This tactic can give quick results!🤑
In a few months, you can earn yourself a fairly decent deposit for work and then reduce your risks (for example, up to 3% of the deposit).
A trader’s negative and positive transactions are always distributed unevenly, there is a series of successful outcomes, then a “black streak” may begin, then again a series of positive transactions, etc. An inexperienced trader, having fallen into a bad streak (which can be caused both by events in the life of the trader himself and by the state of the market - a protracted, slightly volatile correction), risks losing a significant part of his deposit.
And if a trader uses doubling tactics and similar ones, then several negative trades in a row (this happens to any trader) can reduce the deposit to zero. Therefore, it is important to control yourself and follow simple rules 😉
The rules are as follows: determine for yourself the maximum acceptable level of losses per week, for example 5% on capital (like mine).
If the loss limit is exceeded, all trading is stopped until the next week. Determine for yourself the maximum permissible level of losses per month - this is double losses per week, for example, above this is 10%, if the loss limit per month is exceeded, any trading in this month is stopped until the next one (but downtime cannot be less than a week). By following these rules, if you hit a bad patch for yourself, you will save a significant part of your deposit.
Trading and thinking about how to save your deposit is pointless. It needs to be increased! This is achieved, among other things, through money management. The point is to risk larger amounts than usual in initially more profitable trading situations. Having previously determined your weekly loss limit, you can automatically take it as the maximum permissible risk for one transaction or the total risk for a group of open ones. Divide this value by three - this is your minimum risk with which you can enter into a trade.
For example, if your maximum permissible loss level per week is 6% of your capital, then this same figure determines the maximum risk for 1 trade. Those. You should go into the best trades with the expectation of losing no more than 6% of your capital in case of an unsuccessful outcome. A risk of 2% is for ordinary, not very attractive transactions. The criterion for the attractiveness of a transaction is the ratio of the potential profit from it in price and the stop loss level required in this case. This ratio gives you a certain ratio. If this coefficient is less than 1.5, these transactions are devoid of practical meaning, there are a lot of them, but they practically do not provide real growth of the deposit, but they take a lot of effort and time. A coefficient from 1.5 to 2 – it already makes sense to trade, but with small risks, for our example here there will be a risk per transaction of 2%. The coefficient is 2-2.5 - a more profitable deal, you can risk more - 4%. A coefficient over 2.5 is the best deal; you need to risk your maximum - 6% for our example. For the second entry point into a trade, I always recommend applying an average level of risk per trade.
Thus, you must understand that the transaction volume is not a static value and must be varied depending on the attractiveness of the transaction itself. Any “additions” to already open positions should be considered as completely new transactions with their own parameters.
