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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Paul Viapiano who wrote (362)	6/9/1999 12:31:00 PM
From: -	Read Replies (1) \| Respond to of 18137

< when you say 1-5% of capital, do you mean...> Paul, What I meant is that the way the math works out, if you are taking a hit (loss) of more than 5% of your equity on any one trade, it is almost a mathematical certainty that you are going to "blow up" (wipe out). This is very non-intuitive, but it's the way it works. There are many good writeups on this, perhaps someone else can reference a good one. Certainly, you could tie up a lot more than 5% of your buying power in a trade; it's the amount you risk (lose) that's key. In other words, where are your stops. By "trading style", that just means where do you take profits, how consistent is your win/loss rate, etc. This can all be quantified and analyzed of course, the system traders do a lot of it. Of course, it all depends upon your trading style, methods of picking winners/losers, where you take profits, the market environment, etc. One of the big learns everyone gets eventually is "trade smaller" (than what might seem intuitivly obvious at first). THis is where that learn comes from - if you're taking a 5% hit on losers, and you get eight losers back to back, you're down so far, you have to make 100% gain to get back where you started. Preservation of capital is KEY. That's why watching the equity curve is so powerful - it keep you focus on that (and, on making positive progress on the equity curve). -Steve