Don't we all just want to make 1 million in our first trade and on our first day of trading, and be done right then and there? Well for one as cool as it sounds, that scenario is highley unlikely, for a new trader given the capital requirement. The other reason this is unlikely is because to think like this means you're a gambler, and trading is not gambling it's having correct risk vs reward. It's all calculated and set up accordingly.
I trade the Forex market and this is what I use for my risk management formula:
(%risk)*(Total account balance)/(stoploss in pips)
How much risk for that formula is good ?
No more than 2%! If more than you aren't treating your account like a business!
Depending on some trades I've done even 1% risk
Here's an example using 2% risk:
(.02)*($5,000)=100
100/(20 pip stop loss) = 5.0 <- what's this now?
Now take the 5.0 and move the decimal one to the left and you get 0.5. That's your lot size to trade. With a half a lot (0.5) your total risk in money is $5 *(20 pip stop loss) = $100 risked if traded doesn't go your way.
Btw the $5 comes from knowing that 1 full lot per a pip is $10. So just take half of that for this case.
Let's assume the reward now? If our risk is 20 pips then we want our reward to be at least double that. So at 40 pips take off 70% of position. Let the rest ride up for another 10-20 pips and set a take profit.
So 70% of our position is 0.35 lots which is $3.5 a pip and at 40 pips you make $140. Then the rest is .15 lots if you hold that for 10 more pips let's assume. It's only $15 more it's not much but you could hold it longer based on trade preference.
Now let's say it hits your stop and you lose money? You let this trade go study what went wrong and don't revenge trade! Overtrading will cause you to lose your capital!
I hope this made sense and was helpful let me know what you guys think.
Heres an example of a trade I took in the past with a 2 to 1 risk reward as I was describing above. My reward was double my risk. Given the 1 red box and 2 green boxes.
