almost all the forex brokers have a lot of publicity at their small capital requirement to open a account, but if you really use this capital to trading, basically you will soon be kicked out of games, which is why most traders will burst positions within 1 month. Want to know why, well, let's look at those chart, which with the same parameters: Initial capital $300; winning rate: 50%; Stop Loss: 2%; Take Profit:2%; trading 2 times per day, $1 Fee per transaction. Unfortunately, the actual situation is even worse than that, to have a 2% stop lost means $6 for $300 if 1pip = $ 1, that is 6 pips stop lost, how many people use this senseless stop? Most people stop with 15-20 points a 7% SL and TP, then the situation would like this:You will be kicked off faster! This is lucky one, but is kicked off finally. Do not try again and again with minimum capital requirement, this is not the problem of your transaction technology.
How does the market know how much your 2% stop loss is? You should never confuse your trade management with money management. ES
jixiang, Welcome to ET...by the way... Well its according to which dealer you are using...some have 0.01 lot size (penny a pip)...some have 500:1 leverage....etc... There is even one dealer with 1/10th of one penny per pip. Some charge a flat-rate commission along with a narrower pip spread and some do not charge a flat rate commission at all. ES
In average the result of this strategy is -N$, where N is the number of trades. So it will wipe account of any size. Just the matter of time (number of trades).
If you change the inputs to the Money Management Model, then you can produce a Money Management Strategy, that would make such results a thing of the past. But, in order to do that, the trader has to build their trading system or methodology by starting with the Money Management Model, and working their way backwards, to the actual Trade Signal itself. The reason for this is because your expectancy will be driven by your accuracy to a specified target, and your accuracy to a specified target will be driven by the capital requirements (needs assessment) that you have stated for yourself, and your needs assessment will determine what your Money Management Model should like and by logical extension, what type of trades you can and cannot take as a trader. Most new traders do not think through this logical sequence of design steps, when building their trading system, or their trading methodology. The initial step for any new trader should be: 1) Why am a trader and what are my capital requirements? 2) Is there some place else that I can put my capital, that would take care of my needs assessment (capital requirements), without the inherent risk associated with trading? 3) Do I have the personal discipline to first design and then execute a rational business plan for trading? 4) Do I understand the distinction between my Money Management Model and my Money Management Strategy, and do I have the personal discipline to adhere to both? Oddly enough, though none of this would appear on the surface to have anything to do with building indicators, trade signals, trading systems and trading methodologies, underneath the answers to these questions resides the optimal trading approach for any given trader. The rest is having the ability to work hard, work smart, work creatively (thinking outside the box) and never take failure as an appropriate answer. If one can do this, then one has a very good chance of inverting all those Equity Curves that you just posted. It is not easy and the road will be extremely frustrating at time and you might even want to give up on more than one occasion. Success is definitely NOT guaranteed, but your probability for being successful as a Trader long term, goes up geometrically when you approach the business of trading appropriately, as outline above. These charts don't have to look this way. A 50% accuracy rating, is already a given in this business. At 50% accuracy, I would not feel comfortable at all with a risk/reward ratio of 1:1. At 50% accuracy and R/R of 1:1, it is going to be next to impossible to meet the capital requirement needs outlined in a well defined Money Management Model. The standard approach to trading, has not worked for 95% of those who use it. By logical extension, that should cause the wise individual to simply do something different. Hope this helps in some way.