If anyone has already encountered trading, especially in highly volatile crypto trading, then they definitely understand the importance of compliance with risk management in this case, namely the need to correctly set stop-losses on concluded transactions.
Stock trading is always associated with high risks of losses. The strategic trading corridor of a reasonably trading trader is always located between certain price points - take profit and stop loss, within which he fixes either profit or loss.
It's good when the price goes in the right direction, but it also happens the other way around. That is why it is necessary to always adhere to risk management in trading.
How to enter a trade correctly
Each transaction should be with a clear risk to the deposit. That is, when entering any position, a stop loss must be placed, because the current market can present various surprises and therefore you should not ignore this in order not to lose money.
Be sure to put stops (stop losses).
You, as a trader, should clearly determine for yourself how much money you are ready to lose from the deposit if you put a stop and it will be knocked out by it (when the market goes in the wrong direction).
That is, you entered the position, and the price went against your forecast (it went not to the take in growth, but to the stop in decline), due to which the stop is knocked out and the deal closes with a loss.
But how in such a risky situation, from the point of view of correct trading, to determine the optimal amount of possible losses for a trader.
Here it is important to determine how much money you are willing to lose psychologically in such an outcome.
Reasonable trading always implies these losses from 1% to 3% of the deposit.
That is, if you enter a trade and you are knocked out by a stop loss, then you lose exactly 1% of the deposit.
If you have, for example, 5 transactions open, and all of them were knocked out by the stop, then you will lose a total of 5% of the entire deposit. In this case, this is the correct control of your risks.
The placement of different amounts of interest losses on different positions (for one 3%, for the second 10%, for the third 15%, etc.) carries very high risks.
What does this mean
If you have different stops (potential losses) to the deposit, then in case of successful trading, when your trades reach takings, they may not overlap your stops. Because the take will bring, conditionally, 3 – 5%, and some fat stop will bring 10-15% of the deposit, and thus you will not earn anything.
It is clear that everyone wants to earn more and lose less, which is not often the case in practice. Therefore, successful trading should always be based on moderate approaches, which will reduce unprofitability (due to a low percentage of losses of 1% of the deposit) and at the same time gain the potential for profit growth. It is moderation that is the main and important rule of trading.
Calculation of 1% losses from the deposit - where and how to set a stop on a transaction using the example of the chart
When there is a 1% loss from the deposit, many mistakenly think that it needs to be calculated on the chart.
1% of the stop loss on the chart is not equal to 1% of the loss from the deposit. It's not the same thing.
That is, there can be any stop loss on the deal on the chart. It can be 4%, 10%, 18%, etc. In this case, we are talking about the level of support (in accordance with the chosen strategy) that you have set from the current price in order to close the deal when the trend direction changes. And if, for example, you set this stop level at 18% (lower than the current entry price), then if it is closed on it, you lose only 1% of the deposit. And then, to figure out why this is so, we will confirm this with a simple example.
The risk of a deposit of 1% is not equal to what you put in a stop loss of 1% for a specific transaction on the chart.
The risk for a specific transaction should be fixed, namely determined by the following value: the deposit amount x 1%. And in this case, it is important to correctly calculate how much it is necessary to enter a position so that, in the case of a stop on it, losses amount to only 1% of the total deposit.
Let's consider the calculation algorithm on a simple, conditional example.
We have $1200 on the exchange, which is the volume of our entire deposit. We decide to open a long position to buy BTC at the price of $23176.70. At the same time, we determine the zone of our risks for this transaction with a support level of $ 22439.79 and set a stop loss for this price. I.e., if the price goes down, then when this price mark is reached, the position should be closed in order to minimize losses on it. The percentage of stop loss on the chart is 3.2%, and the fixed amount of possible losses is 1% of the deposit = $ 12 ($1200 x 1%).
The question is how much to open a position for under these conditions ?
We make a simple calculation of the proportion:
3,2 % - 12 $
100 % - x
where
3.2% - drawdown according to the schedule from the position opening price to the stop according to the schedule
$12 - fixed amount of losses (1% of the total deposit)
100% - the percentage of our entire deposit on the exchange in relation to which we consider losses
x - the amount for which you need to open a position.
(100 x 12 )/3,2 = 375 $
Thus, in order for our losses when the stop is triggered (as shown in the graph) to amount to 1% of the deposit amount of $ 1200, it is necessary to open a position in the amount of $ 375.
And if we trade with leverage ?
And how to calculate the volume (amount) of the entry, if we are not trading on the spot or not with the first shoulder, but, for example, with the fifth (5x) or tenth shoulder (10x), etc.?
Let's consider the calculation relative to the data of the previous example, but already trading with the tenth leverage.
Everything is quite simple. In this formula, it is necessary to multiply the percentage of stop loss on the chart (3.2%) by our leverage (10x).
(100 x 12 )/(3,2 x 10 ) = 37,5 $
Thus, when trading with the x10 leverage, we need to enter into a deal in the amount of $ 37.5 so that our losses when the 3.2% stop is triggered on the schedule amount to 1% of the deposit.
This strategy is an important trading rule related to the correct setting of stop-losses on open positions (transactions).
Let's note it again.
The percentage of losses from the deposit chosen by your strategy should always be fixed. If not 1%, then 2% or 3% (if a more aggressive strategy is chosen and it does not hit you in psychology), but no more than that, in order to comply with reasonable and correct risk management.
If you need to quickly calculate the entry volume for a specific transaction, you can use an online calculator.
How to set stops correctly is an important rule of trading Somehow!
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