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Phil's Mental Account Balance Print
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Trading lore from Phil

$1,000,000 in the bank risking 1% of account on any trade means your risking $10,000 per trade.....

 

An extreme example but if you have got that and can afford that, great.

 

Now lets think for a moment, trading with YOUR current size of position; Do you;

  • Loose sleep at night?
  • Worry about trades?
  • Avoid placing trades?
  • "Fiddle" with trades?
  • Prematurely manage trade to lock profits in?
  • Prematurely manage trade to reduce risk?
  • Have sweaty palms?
  • Fidget too much before during and after a trade?

If you have answered yes to any or all of these questions or a whole long list of related questions then there is one and only one root cause.

YOUR TRADE SIZE IS TOO BIG. PERIOD!

While you may have the physical means to trade with larger position size it does not mean you can or are able to trade with that size of position.

Your mental account balance is far more important. If that means, to not experience any of the above, you have to trade with mini or micro lots then do so.

Doing the right thing is not always what you want to do but it is very simply the best thing you can do.

Jesse Livermore summed this up very well;

"Reduce your position size down to a sleeping level."

Regardless of how big your physical account balance is, if your mental account balance is not also well managed then you will have no hope of succeeding in the long term.

Start small and build your mental account balance up stage by stage as you would do building your physical account balance up so that you are never loosing sleep and stressing for any reason about a trade.

A final question to ask yourself after each trade.

Are you both physically AND mentally able to place the next trade?

Personally while I never trade more than a maximum of 2% of my account equity. In reality it is rarely ever above 1% and often below 0.5% of my account equity which suits my mental account balance just fine to never ever worry about a trade or prevent me from placing the next trade.

Managing my mental account balance this way allows me to apply my first and only golden rule;

Trade sets up, trade goes on.

 

From the blog

ESMA 1st August!!!!!!

At long last ESMA has set the day.

From 1st August 2018, retail traders will have to pony up more margin. Gone are the days when brokers were falling over themselves to give the 'Best', lowest, margin rates that allowed almost anyone to control a big slice of the pie with a miniscule account.

I rember the story of the guy who opened an account on a Thursday with £8,000. By close of play on Friday night, he had run it up to £100,000 plus, on the Dow. Margins were crazy low and he was able to use the open trade profit as more margin! By close of play Monday the day put in a modest correction. Result, he was wiped and owed the broker money which they enforced. A great introduction to spread betting.

All that is no longer possible, illegal within ESMA. The new regs take us back and beyond how it was when I started trading Forex, 50:1 margin was the maximum anyone offered, in line with US regulations. Now Forex is 30:1.

This is the gist:

For major FX pairs, leverage is adjusted to 30:1 (3.33%).

Suppose GBPUSD is trading at 1.3200, £1 per pip will be 13200 * 3.33% * 1 = £ 440. At £10 per pip it's £4,440

For indicies, leverage will be adjusted to 20:1 (5%).

Suppose WS30 is trading at 24000, £1 per pip will be 24000 * 5% * 1 = £ 1200. At £10 per pip you will need a minimum of £12,000.

Unrealised gains can no longer be used as margin and the broker has to close out your position if the market runs against you and your margin funds drop by 50%.

One of the spread betting companies admit that the old system encouraged over trading (punters lost money has corrections took them out and so spraed bet companies made huge profits). They now admit that clients who trade well within their account size are more succesful.

So what to do now??

Under trade under trade!

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