A Trader, unlike an investor, will calculate very clearly how much they are prepared to lose; and that has to be an amount that does not alter a traders objectivity.
All trades are somewhere between a 40% to 60% probability. There is no certainty in trading.
However, the lower probability trades need at least double the reward to risk. In such a trade if our trade amount is say £200 we would expect to achieve a reward of at least £400. If not, we don’t take the trade. In such trades, however, a reward many times the risk is possible. If managed consistently well such trades can be profitable with only 30% of trades being winners.
In the higher 60% probability trades we need a reward at least one times the risk. Therefore, if our trade amount is again £200 then we would need to achieve at least a £200 reward. Even if managed well, such trades still require better than a 70% success rate to be profitable.
Achieving a profitable traders equation is vital. And determining what is a low or high probability trade, and therefore determining the reward required, is a necessary skill.
How do I decide the trade amount? I simply use a 44th of the fund amount and trade half that amount on intraday chart trades and the full amount on daily chart trades. I would consider 3 to 9 trades a day on intraday charts, and 1 to 3 trades a week on daily charts, to be an average.
I have traded the last month with a low risk amount of £20 per trade. This I find is a good amount to prove back tested strategies and still remain objective. The results are exciting and we are ready now for a gradual increase again to full amount trades.