If you have read my previous 3 chapters on risk management, you should understand:
• The 1% rule
• How to calculate position size
• The inverse relationship between risk reward ratio and win rate (and that you only need 34% win rate to make money)
Let’s now put them together using the below assumptions:
• Account size = $10,000
• Risk per trade = 1% ( = $100)
• No. of trades per month = 30
• Average win rate = 50%
• Average rr = 2
Question: How much money can you make per month using the above figures?
Answer:
Risk per trade ($) * Avg rr * (No. of trades per month * Avg win rate) – Risk per trade ($) * (No. of trades per month * Avg loss rate)
, where loss rate = (1 – win rate)
= $100 * 2 * (30 * 50%) - $100 * (30 * (1 - 50%))
= $100 * 2 * 15 (winning trades) - $100 * 15 (losing trades)
= $1,500
What this means is if you have a trading system that gives you an average win rate of 50% with 2 rr, you could make $1,500 per month if your risk per trade is $100 and if you can find just one opportunity a day.
What if your risk per trade is $200? Your potential profits become $3,000 per month.
Yes, that’s right, just one trade a day can give you so much money if you know how to risk manage and if you have a consistent profitable trading system. And, by increasing the number of trades per month and risk per trade, your trading system becomes “Scalable”. Scalability is one of the keys to profitability.
There are so many asset classes that you can trade – forex, commodities , stocks, crypto currencies etc. Each asset class has so many pairs that you can trade. How difficult is it to find just one decent trade a day?
It is only difficult when you trade only one asset class such as crypto currencies. When the crypto markets are in consolidation (like what happened during the second half of 2018 and now), the amount of good opportunities to trade are limited. Consequently, you become impatient and start forcing yourself to open positions and you end up getting stopped out again and again.
For the above reason, when people ask me “what if I miss the opportunity of buying” my answer is always the same – “I am not worried as there are so many opportunities in the market”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
• The 1% rule
• How to calculate position size
• The inverse relationship between risk reward ratio and win rate (and that you only need 34% win rate to make money)
Let’s now put them together using the below assumptions:
• Account size = $10,000
• Risk per trade = 1% ( = $100)
• No. of trades per month = 30
• Average win rate = 50%
• Average rr = 2
Question: How much money can you make per month using the above figures?
Answer:
Risk per trade ($) * Avg rr * (No. of trades per month * Avg win rate) – Risk per trade ($) * (No. of trades per month * Avg loss rate)
, where loss rate = (1 – win rate)
= $100 * 2 * (30 * 50%) - $100 * (30 * (1 - 50%))
= $100 * 2 * 15 (winning trades) - $100 * 15 (losing trades)
= $1,500
What this means is if you have a trading system that gives you an average win rate of 50% with 2 rr, you could make $1,500 per month if your risk per trade is $100 and if you can find just one opportunity a day.
What if your risk per trade is $200? Your potential profits become $3,000 per month.
Yes, that’s right, just one trade a day can give you so much money if you know how to risk manage and if you have a consistent profitable trading system. And, by increasing the number of trades per month and risk per trade, your trading system becomes “Scalable”. Scalability is one of the keys to profitability.
There are so many asset classes that you can trade – forex, commodities , stocks, crypto currencies etc. Each asset class has so many pairs that you can trade. How difficult is it to find just one decent trade a day?
It is only difficult when you trade only one asset class such as crypto currencies. When the crypto markets are in consolidation (like what happened during the second half of 2018 and now), the amount of good opportunities to trade are limited. Consequently, you become impatient and start forcing yourself to open positions and you end up getting stopped out again and again.
For the above reason, when people ask me “what if I miss the opportunity of buying” my answer is always the same – “I am not worried as there are so many opportunities in the market”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
- Chapter 1: 1% rule
- Chapter 2: How to calculate position size?
- Chapter 3: The Sweet Spot
Note
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.