Risk Management, 5%, five percent, five percent rule, 5% rule, five percent plan, 5% plan,
9 Likes
Hi Darrell,
You mention that you should place at least 6 trades on the same instrument before considering walking away if they are all losses. Am I hearing that correctly? Or are you saying you should place 6 trades before you considering walking before you are up OR down?
Thanks,
Justin
This is not what i say. I don’t say 6 trades.
I use a simple formula. 5% of account / 6
If i am down net 6 trades (that would mean i would be down 5% then i would stop trading)
Note the important thing here is net trades
ie if i profit on 3 trades and lose on 9 (hard to do… but you need a stopping point)
if i profit on 3 and lose 3 im net 0 on win/loss (though my profits ar enot capped like i cap my losses so i could be net positive so far) but until net down 6 trades and 5% both i don’t have to stop trading.
This combination of net down 6 trades which should not exceed 5% allow me to not be psychologically damaged from a loss or even a string of them. This is so important!!!
Also once I’m up 5%+ i don’t go back below 5%
So lets say you get in a trade your at 3% up on the day you end up 7% - don’t risk mor ethan 2 % of your account so when you walk away worst case is your up 5% in this scenario. But you could use that extra 2% if you so desire to try to increase it (repeate this in 5% increments - ie you get to 13 % - dont risk more than 3 % so you keep 10 % and so on.
(Please post all the questions you have but please don’t post the same question in 2 places 
aka double posting)
2 Likes
just dont understand what you are trading if you are risking $8.33 what can you find for that?? lower and upper spreads with 12 - 24 ticks befroe you see any profit or a way out of the money binary? there is nothing to trade at $8.33 am i wrong?
or are you saying take the middle spread but have an $8 stop loss??
Well there are things you can trade for that little risk. But I think your missing the point. The point here is the power of compounding (not daily every trade but just 1x a month and at just $50 on $1000). Again in the video i state not saying you won’t have losses, not saying you won’t make withdrawals, not saying you will always make 5% (even though you could make more etc…[and i do stress when you are up more than 5% to not give it back if you want to keep trading only risk the % above it]) its just understanding the math as $50 on a $1,000 account seems so small to most people but it is huge.
The math was started at 1k for simplicity. you can just easily say per 1k (ie assuming you have 3k, 5k, 10k, 30k etc…)
The easiest would me micro forex. You can make a pip worth a mere .10 cents. so lets say you have 24 tick stop loss that is $2.40 and you could do 3 mini lots.
So in that case does that mean you would make less money? Yes of course. But your account will last longer and as it grows (as shown above) would be come larger allow mini lots, Nadex, Futures etc…
There are certain binary strategies that can do this though you have to be a lot more skilled in magnet pricing to do them.
Sometimes spreads at night on forex. US Tech 100 can have a low risk etc…
But your missing the main point which is the importance of risk management and the power of making 5% a day.
Will some traders have to risk more than this (yes if they don’t want to follow this risk management plan and are not patience and not wiling to say trade micro forex. Is there anything wrong with that. No not really. The trader just needs to understand that by risking a larger % of their account they have less room for drawdown and will have more psychological damage (causing them to not take a winner - doubting it - then being frustrated hop in on a losing trade). I have seen this be the downfall probably the top downfall of most traders. No one likes to be told they don’t have the amount of money to trade properly. Eventually they will accept it but it can take a few go rounds of funding an account to accept it and that is if they are still up for it. If they can take the damage and see the full amount as risk capital and understand that by not using such risk management measures they do increase the probability they will have to fund their account more than 1x then that is fine. If they are not comfortable with that and say they want to take $24 of risk. Then they would need to save up say $3k and while doing that learn and demo trade and build discipline. As I state alote its not about where you want to be in 12 days its about where you want to be in 12 months 12 years. Having to hit reset again and again is the same as saving and funding. Or like I said do mirco forex etc… and get going live. Its not much but if done correctly it can add up quickly (the main point of the video). Either path is the traders choice.
1 Like
I think I’m the trader that you describe that has massive psychological damage because of a small account. But I feel I have no choice. I really need income now. Which, I know, I know, the market doesn’t care and you have to leave all that stuff at the trading room door. But I just feel such in a catch22. Big moves during the day, but I work and I’m the only one working right now. Sure, I can go get another job to try and meet the immediate need (which it still won’t), but then that is a time cost, because I will have less time for trading. I already burn the candle on both ends now trying to work during the day and staying up late to try and trade at night. Its just so frustrating. I can’t save what you don’t have.
Would love to be in proper risk management, but for my situation, just don’t see how that is possible. I read your response to my post regarding what it takes to trade full-time and I just became depressed…6 months savings? I’m trying to work on 6 day savings.
1 Like
Note when i post the risk management and i post the ideal savings amount etc… for full time trader this is to put you in the best place psychology to be an effective trader. It does not mean that one can not take a risk on and use more money risk a higher % and have less savings. They just need to keep their eyes open to what risk they are taking on. Obviously consistent long term trading is about managing that risk. Sometimes traders take bigger risk out of the gate. Sometimes they have to do it a few times over.
Regarding night time - you may be better off getting up earlier in the morning - i say 3 AM to 11 AM is where most the volume is and moves are. Just open up charts look at expected volume see where the volume is on specific instruments.
I used to say up an hour or two do research after everyone went to bed. I would then get up a few hours early before work and trade the late euro/pre open session and put on couple trades and close some while at work on my phone. It was well yes exhausting but it was rewarding when i told my boss it was costing me money to go to work and i had to quit
Note you can trade at night, we teach various strategies like momentum scalper, 5 Minute Binary Trend Catcher, apex on minute bars usually for night profit poppers, boomerang, butterflies etc… so there is a variety of trades. With less movement you have to have your eye on a few more things. you won’t catch massive moves but that does not mean you can’t make good profits. That is the beauty of options.
4 Likes
A post was split to a new topic: Just Lost
Very very inspirational…the time sacrifice you made to quit your job…that hit home for me…big time
1 Like
Darrell, This is such great feedback. I didn’t know you taught on the 5-minute binaries. i must have spent at least $500 trying to ‘master’ the 5-min binaries. Such good info from you as always. Much appreciated.
RW
