Think like a trader

A Trader, unlike an investor, will calculate very precisely 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 £200, we would expect to achieve a prize 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 bonus. 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 learning the reward required, is a necessary skill.

How do I decide the trade amount? I use a 44th of the fund amount and trade half that amount on intraday chart trades and the full amount of 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 right amount to prove backtested strategies and remain objective. The results are exciting, and we are ready now for a gradual increase again to full amount trades.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.