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As a floor trader I found that my threshold was 1000 a day. This meant that if I lost less than 1000 it was OK, not that I liked losing 1000, but it didn't devastate me. If on the other hand I lost more than 1000 a day, it did affect me, I would start to trade more aggressively trying to make it back. So if I made sure that I kept my losing days to less than 1000 I was fine, I could come back the next day and trade unaffected by the loss. If, though, I did not contain the loss and it went over the 1000 mark, I was in very dangerous territory as I would find it progressively harder to accept the loss and would trade accordingly. As time has passed I have found that my tolerance for loss has decreased rather than expanded. Perhaps as my skill level has increased my level of control has also increased. Large enough When considering your threshold of tolerance for loss, it is important to also consider the approximate minimum that is realistic for a specific market. For example with FTSE futures I would say the minimum is 200, which is 20 points trading a 1 lot. If your comfort level is below 200 then a less volatile market would make a better fit. So your level needs to be large enough for the market you choose to trade. 79 You also need to consider your profit target. As it will be a factor of your loss limit, you want your loss limit to be large enough to offer you a potential profit that is in line with your expectations. If you are looking to make 5000 a day, risking 200 a day isn't going to work. As a rule of thumb a profit target of twice your loss limit works well. Below is a diagram that shows the average daily profit for every 200 risked, with a daily profit target of twice the risk amount. Daily Risk Daily Profit % Profitable Days - 200 400 30% 40% 50% 60% Av daily profit: - 20 40 100 160 |
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