Above is an important illustration that will outline the difference between risking 2% of your capital per trade compared to risking 6%.
If you happened to go through a 10 trade losing streak, you would have gone from starting with £20,000 to having only £11,459 left if you risked 6% on each trade.
After 10 losing trades you would have lost over 40% of your account.
If you were more conservative and risked only 2% of your account per trade, you would still had £16,674 which is only a 17% loss of your total capital.
- 10 trades at 6% per trade would mean a 75% increase is required to get back to breakeven.
- 10 trades at 2% per trade would mean a 20% increase is required to get back to breakeven.
The point of this illustration is that you want to setup your risk management rules so that when you do have a drawdown period, you will still have enough capital to stay in the game.
A day trader will not be risking as much as a swing trader or a position trader per trade. Smaller time frames include more noise and fake price movements. With day trading you have a large amount of trades more than a swing trader would in any given month. Hence it would be ridiculous for a day trader to be risking the same amount on a 1 minute trade than a Swing trader would on a 4H or Daily trade. Based on what you said, you're telling me that a day trader makes/risks as much in one 1Minute chart trade that will probably last 10 minutes than a swing trader would on a Daily chart trade that would probably take 10 days to complete? Come on.
With greater time frames comes greater risks
Where as Fixed Ratio money management takes in to account the hole portfolio you trade, and the previous numbers you have made trading your set portfolio, and calculate the optimal matematical formula to when to increase or decrease lot sizes and takes in to account a slow down multible so it don´t spin out of controle. And that in the beginning it grows your account in the optimal way compared to each winner and looser. It takes you know your maximal drawdown for your trading strategy for the past year for an example, and your average winning and loosing trade.
I will suggest the book from Ryan Jones - The Trading Game Playing The Numbera to make Millions. It will take peoples average 20-30% return a year and make it a 80-150% return. Just using mathematics.
I hope this will make some new traders realize that trading profit is 10% the pips you make and 90% the money management you implement to those pips, this will get you out of the gate faster, but of course you need a profitable method to begin with.
This is true, however it depends on how your plan is set.
For example at target 1 would you take off half of your position and let the remaining run?
Again it would all depends on what kind of strategy you are using, is it harmonic patterns or structure support?
If you are trading harmonic patterns you usually get 1.5:1 if not more depending on how deep the patterns complete on the Fibonacci.
If you are trading support and resistance most trades give a better than a 1:1 risk reward ratio.
Many traders make the mistake of letting there losing trades run and cut there winning trades short, try not to be greedy but squeeze the pips out of the winning trades and cut the losing trades short.