The way you have sized your trade, and most likely it’s because you put the stop-loss very close to entry price, you find that if I get into this trade, I fully use up my entire capital base although I’m just risking 1%. That’s what you were trying to explain earlier on as well, right?

You were risking only 1% of your capital, but because after doing the calculation, you realized that if you want to get into this short trade, you will have to use up your full entire capital just to open up this position.

Which means that you are having a 1% risk on your entire equity, but you are only having one single position.

Which means that you actually still have the capacity to take on more positions of let’s say 1% each, maybe up to another five different positions.

With 1% risk each, you are still exposing yourself only to about 5% to 6% risk. Which you are still capable of doing, but you can’t because you fully used up your capital already.

That is actually where I will actually suggest to most people, this is where leverage becomes helpful. Okay?

I’m not sure whether when you mentioned that you fully used up your capital, does that include the leverage part already, or is it just your own equity part?

If it’s just your own equity part and you have leverage facilities, that’s when you can actually make use of the leverage to get into more positions of 1% risk each because you know that even if you are using leverage, the maximum risk exposure is your total number of open positions times that 1%.

Interested to receive mentorship opportunities like this with Philip?

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Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile

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