The Pain Gauge


Tansen

Well-Known Member
This is something I've often wondered... as a person who risks about 2% max, typically 1%, my risk tolerance or pain I'm willing to take is that of 1-2%. If I slip beyond my practice maybe 5% is the most excruciating pain I've ever taken.

What would you think is the most pain anyone should endure on their account before cutting or even switching to paper?
 

shopster

Well-Known Member
the % of equity risk is only a small part of the calculation.




Risk of Ruin formula.

risk_of_ruin = ((1 – Edge)/(1 + Edge)) ^ Capital_Units

Here is how the math works out below after a series of 3 losers and 3 winners:
10k with 1 loss at 2% = $200 loss and acct is at $9800
$9800 with 2nd loss at 2% = $196 loss and acct is at $9604
$9604 with 3rd loss at 2% = $192.08 and acct is at $9411.92


http://2ndskiesforex.com/strategies-for-forex-trading/forex-articles/money-management-and-the-risk-of-ruin/

http://www.investopedia.com/terms/a/alpha.asp
 

jack

Administrator
Staff member
I just found this off some other site but I thought it was funny:

https://www.youtube.com/watch?v=B8cN586JUR8

(Obviously fake, bar by bar moves.) :p
 

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