Trade Stock Indices

Draw Down vs Maximum Draw-down

In any business, to make money, you have to figure out how to handle the dangers. To make money in trading, a trader first needs to learn and understand how to handle the market's risks. To make money when trading in this online indices market, you need to learn about the different ways to manage your money that are talked about on this Learn Stock Indices Trading Website.

In trading, you manage risk to avoid losses. Following indices money management rules not only protects your account but also helps you stay profitable over time.

Draw-down

Traders face drawdown as their top risk. It means the money lost from one trade on your account.

With $10,000 capital, a $500 loss means 5% drawdown. Divide the loss by total capital.

Maximum Draw-down

Drawdown is the total loss on your account before profits kick in. Say you start with $10,000. You lose $1,500 over five bad trades. Then you gain $4,000 from ten good ones. That $1,500 loss is 15% of your capital.

Indices Money Management

Draw-Down is $442.82 dollars (4.40 %)

Maximum Draw Down is $1,499.39 dollars (13.56%)

To learn and know how to get the above trading reports using MT4 software: Generate Reports on MT4 Tutorial

Indices Capital Management

The ensuing visual aid demonstrates the contrast between allocating a minor degree of your trading capital at risk versus exposing a substantially larger portion. Sound investment doctrine dictates that a trader should refrain from risking over two percent of their aggregate trading equity on any single venture.

Percent Risk Technique

2% & 10Percent Risk Per Trading Strategy in Money Management

2 percent & 10 % Risk Rule

There is a major difference between risking 2 % of your total funds compared and assessed to risking 10 % of your trading money on just one trade.

If you happened to be on a losing streak and lost 20 trade transactions in a row, and you risked 10% on each one, you would have gone from a beginning trading equity balance of $50,000 dollars to only $6,750 dollars dollars in your trading account. You would have lost more than 87.5% of your equity.

However, if you only risked 2% you would have still had $34,055 which is only a 32 % loss of your total equity. This is why it's best to use the 2 percent risk management method

The difference between risking 2% and 10% is that if you risked 2%, you'd still have $34,055 after 20 trades where you lost money.

Risking 10% per trade leaves you with $32,805 after five losses. That's worse than risking 2% over 20 losses.

The idea is that you, as a stock trader, want to create your trading rules so that even when you have a period of losses, you still have enough money to trade again later.

If you have lost 87.5% of your trading capital, you would need to generate a 640% profit to return to break-even.

By way of comparison and analysis, if you suffered a 32 percent loss of your trading capital, you would need to achieve a 47 percent profit merely to return to your initial capital (break-even). Contrasting this with other scenarios, a 47% recovery is significantly more manageable than achieving a 640% profit.

The chart below shows the percent you need to earn to break even after losing some of your trading money.

Concept of Break-Even

Trading Account Equity and Break Even Strategy - Stock Money Management

Account Equity & Break-Even

A trading account with a 50% drawdown necessitates achieving 100% returns just to recover losses - a feat achieved by very few traders worldwide due to its complexity.

If a trader's money drops by 80%, they have to increase their money four times to get back to the starting amount. This is known as "breakeven," which means getting back to the original amount of money you put in.

Losses grow tougher to recover as your account shrinks.

This is why you need to do all you can to PROTECT your money. Don't allow yourself to lose more than 2% of your money on any single trade.

Effective money management in indices trading involves risking only a small percentage of capital per trade. This precaution shields traders during losing streaks while minimizing significant account losses.

In index trading, stop loss orders limit losses. Risk control requires a stop loss after you place a trade.

Effective Equity Management

Effective risk management requires controlling all the trading risks. One should create a clear indices trading money management system and a plan. To be in Indices or in any other biz you must make decisions which involve some risk. All aspects should be measured to keep risk to a minimum and use the above tips on this course.

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