The Pain Gauge

Discussion in 'Systems and Methods' started by Tansen, Jul 23, 2013.

  1. Tansen

    Tansen Well-Known Member

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    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?
     
  2. shopster

    shopster Well-Known Member

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    Jun 17, 2013
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    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
     
  3. Ramy3

    Ramy3 May the pips be with you!

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    PAIN!
    http://www.youtube.com/watch?v=vIMwMsY0ndo
     
  4. jack

    jack Administrator Staff Member

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    Mar 29, 2013
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    2,427
    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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