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Calculating your maximum daily loss limit
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Calculating your maximum daily loss limit

  #11 (permalink)
Elite Member
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I think JonnyBoy makes an interesting point about the 5,000 in one's trading account. I guess one needs to discriminate between what you have in your trading account and your trading capital as a whole.

Especially when starting, I found that having a limited amount of money in my trading accoung helped psychologically by not making me reckless. There is the mental barrier of having to deal with margin calls if the account goes to close to margin.

So one could risk 1% of their trading capital but have only (say) 10% of their trading capital in their account. At least at the beginning.

Sure. I get where you are coming from. If you had $50,000k at your disposal allocated to trading ES, but you only activated $5,000 of that into your trading account, sure, that could work I suppose, but you will lose flexibility to add to existing positions and makes a swing trade impossible. Stops you from making a huge error though I guess.

I wouldn't imagine many traders here allocate chunks of capital to their account that way, but you never know. I don't, but then again I have always been all or nothing!

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  #12 (permalink)
Market Wizard
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JonnyBoy View Post
Sure. I get where you are coming from. If you had $50,000k at your disposal allocated to trading ES, but you only activated $5,000 of that into your trading account, sure, that could work I suppose, but you will lose flexibility to add to existing positions and makes a swing trade impossible. Stops you from making a huge error though I guess.

I wouldn't imagine many traders here allocate chunks of capital to their account that way, but you never know. I don't, but then again I have always been all or nothing!

Indeed JonnyBoy, and that's why I stressed "especially at the beginning". I think when you have 'modeled' the trading style you want on a small account then you should be able to risk more.

But I have heard horror stories (here and in other forums) of people losing tens or even hundreds of thousands in just a few weeks/months. By limiting the amount of capital you have to play with when you're starting, you should at least limit the temptation.

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  #13 (permalink)
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xplorer View Post
Indeed JonnyBoy, and that's why I stressed "especially at the beginning". I think when you have 'modeled' the trading style you want on a small account then you should be able to risk more.

But I have heard horror stories (here and in other forums) of people losing tens or even hundreds of thousands in just a few weeks/months. By limiting the amount of capital you have to play with when you're starting, you should at least limit the temptation.

Yes, I agree. And of course you never know when the next flash crash event will happen and your stop gets skipped - you could be wiped out in seconds. I remember the May flash crash event very well. I was not in the market at that time but a trader friend of mine was and boy he was hurting the next day.

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