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Old 01-20-2009, 12:40 PM   #11 (permalink)
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Hi Cristian,

Pretty much anywhere on the site is fine for placing comments as we like to encourage community interaction so thank you for your input here.

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Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.
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Old 12-31-2009, 09:42 AM   #12 (permalink)
 
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would it be impossible to keep to 2% of your account balance and setting stops with a small account balance of $500 because of brokers minimum lot sizes
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Old 12-31-2009, 10:12 AM   #13 (permalink)
 
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That should not be a problem because today you have micro accounts that allow tiny positions.
And if you don't have enough money to take the trade without violating money management then dont take the trade.
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Old 02-10-2010, 07:46 PM   #14 (permalink)
 
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Thanks for the course.

Is it possible to use a range of values for the stop-loss?
I mean when the software check if out of limit, it would pick one value in the range through a random function?
That would perhaps ease a little the fact that other traders would on purpose push one out of the trade position?
does forex platforms alow traders to use such methods?
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Old 02-14-2010, 05:42 AM   #15 (permalink)
 
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As a newbie (just studied the previous module of basic of trading) I have difficulties understanding how to calculate the amount of capital needed to fit the 2% limite of capital risk.

If the price is going down 115 point and whatever amount I choose, wouldn't the capital change in the same proportion?

To adjust the risk the only thing I see is changing the leverage.

I hope it's not a problem with my synaps!

If not a problem of synaps , every newbie reading this chapter would need more information to understand the point.
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Old 02-15-2010, 11:12 AM   #16 (permalink)
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Hi Marc

What you do is-
You figure out where you are going to enter the market, and where you are going to place your stop loss.
Your stop loss is your fail safe. Therefore, the most money you can lose on the trade would be if your stop loss gets hit.

What you then do is calculate out how much money you would lose per share if you are stopped out. Then you calculate out a position size (you figure out how many shares to buy) so that if you are stopped out, the amount you lose is, at most, 2% of your account balance.

I'll give an example-
You have an account with $10,000 in it.
You find a stock and want to enter at $50 a share.
You find that the best spot for your stop loss is at $48 a share.
Therefore, if you are stopped out, you will lose $2 a share.

2% of $10,000 is $200. Therefore, the very most you want to lose on this trade is $200. Since you will lose $2 per share if stopped out, your position size would be 100 shares (which now maximizes the possible loss to $200 or 2% of your account).


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Old 02-24-2010, 09:34 AM   #17 (permalink)
 
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It's ok now!

In this case half of capital has to stay unused and unrisked on the account.

The problem was the use of the words 'point' and 'contract' that confused me because I don't know their meaning .

Thanks.
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Old 03-23-2010, 01:02 PM   #18 (permalink)
 
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Hi Tek,

If I understand this stoploss concept correctly, then as Marc was saying there would be a portion of the account that is unused. If the trade is based on a share price of $50, then the cost of the trade is $5,000. This leaves an unused balance of $5,000 cash in the account. However, I've been getting confused on the money management principle of using 2% of the account ($10,000) to invest with using 2% of the invested money ($5,000). It sounds like using 2% of the $10,000 account is using only $200 to purchase the stock. If that were true, then you could only purchase $200/$50 = 4 shares, not 100 shares. I'm not sure where I'm getting confused. Maybe its the terminology. On one hand your talking about losing $2/share and then that turns into 2% of $10,000. There's a gap in the info that I'm not understanding. In either case, the entire $10,000 is not being used, only part of it. Can you restate this stoploss process again a little differently?

Thanks,
SJ
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Old 10-08-2011, 09:01 AM   #19 (permalink)
 
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I always enjoy the way you present information. I am reading Trade Your Way to Financial Freedom by Tharp and when I read the title of the lesson I said to myself this sounds like position sizing using a percent volatility method. In this case the ATR and more about setting stops, but if you are using the %volatility/ATR then you account for that movement in your stop anyway. The books are always lacking of charts that is why I love your video. They really visualize the concept. Thanks again for the knowledge.
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Old 09-23-2012, 12:24 AM   #20 (permalink)
 
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To check whether the stop price adheres to the 2% risk rule, Dave's calculation is 115/10,000. Does this mean the formula is ATR / account capital?

But then Dave also writes: Stop Loss: 115... So stop loss = ATR? I thought the stop loss would be the price at which the stock is bought minus 115 since it's just a range...

So ATR = Stop Loss? Confused...
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