Yeah obviously it’s sound practice to get everything down first. They say “If you’re not profitable in demo, it’ll be pretty difficult to be profitable live.”
The 5% management model is applicable to anything, really. If you get through the details of that post you’ll see that’s because it doesn’t rely on anything other than the math. It doesn’t matter what you’re talking about trading, because it’s all about risk management based on just your account size. So you just figure 5% of your account and divide by 6. The result is a conservative amount to be risking on each trade. Of course you can do more or less, but this is the recommendation (for reasons explained in the post.)
So to determine how much you would need in your account, you can work backwards from the minimum amount you would risk on a trade. The most ticks for the latest Apex systems is 25 (enter 3 ticks beyond the close of a bar, and the stop is 2 ticks beyond the high/low of that bar, and 10 tick bars). At $5 per tick (NQ), that’s $125 risk per trade. Multiplied by 6, then by 20 (5%), that’s $15k account size.
However, there is flexibility…the “divide by 6” is to allow your trading day to begin with 6 losing trades in a row before you stop. (Or more accurately, you stop once you have a net loss of 6 trades.) There’s nothing that says you have to be able to take that many trades. You could still maintain the same “5% net loss max per day” with less. So for example, you could have an account half that size ($7500) and simply stop once you net 3 losing trades.
Also, as Darrell mentions in the post, the other alternatives are (1) Trade something with lower risk (list of examples in that post), (2) trade a larger percentage with the knowledge that you could potentially have to re-fund the account, (3) trade demo and save your money until you can get the proper account size for what you want to trade.
As he says, the latter takes a lot of discipline, but it costs you nothing but time.
Obviously that’s the way to do it. Or, at the very least, trade demo until you’re consistently profitable, in which case you could start trading live with a smaller account, and be confident that you won’t need so much of a safety buffer.
With $5k account and the 5% model with $125 risk per trade, that would be “if you start your day with two losses in a row, stop until tomorrow.” That’s not terrible. Remember, every win goes toward allowing another trade (of course you have to earn a full $125 plus fees to fully even out a loss), but it’s not like you only get 2, or 3, or 6 trades…it’s about your net earnings for the day. You only have to stop when your account is down by 5%. So if I lose the first trade, but earn that same amount back on the second trade, my account balance is the same, which means I can take at least another 2 trades.
As mentioned, you could also just do a higher percentage. If you proved profitable in demo, you might be comfortable doing a 10% risk per day instead, in which case even with a $5k account, that gives you 4 net losses before you had to stop. (Bear in mind this is figuring 25 tick stop loss on an instrument that features $5/tick. Other instruments may be different.)
As you can see, this is all really just a system to keep a really bad day or two from wiping out an account. As Darrell mentioned, it helps to ensure that it would take a month of losing 6 (or whatever you divide by) net trades every day to wipe out an entire account. “Even for a monkey with a dart board, losing 6 net trades in a day 20 days in a row is hard to do!”
All that being said, we go back to the beginning where we said you don’t really want to be trading with real money until you’re profitable in demo anyway. So if you have some timely investment for your trade money now, you might go ahead and use it for that while you work on learning the system and becoming profitable with it. You can be saving up to fund an account for when you’re ready in the meantime.
