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EP169: What are the “Rules” in Compounding Accounts?
In this episode of Truth About FX, Walter talks about the rule of thumb in compounding your money. And what are these two rules that you should always keep in mind? According to Walter, there’s an easy trick that will let you identify your risk margin and some tools that will help you spread out to other platforms. And what is this one thing that you need to dig into before deciding on any broker. Find out more in this episode.
Download (Duration: 05:47 / 13.9 MB)
In This Episode:
00:35 – rule of thumb01:43 – figure two things out02:40 – 20-trade multiple04:57 – maturing as a trader
Tweetables:Check how your broker does the math
@TruthAboutForex http://fxtr.co/a6" rel="noopener noreferrer">[Click To Tweet].Find tools that can help you [Click To Tweet].Spill the eggs in different baskets [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Terri asked. He is making money trading and he has a trading account but he knows that it’s not a good idea to keep all your money in trading account. So what is the rule of thumb when it comes to putting money at a broker, pulling it out and stuff like that?
Walter: So Terri wants to compound his accounts. It’ll depend. What I would say is this. What you need to do is come up with a number of trades that you need to have sort of bank in your account so that you are able to withstand one a drawdown: a losing streak; and two, able to maintain the account if you have multiple trades open.
The way I’ll look at it is like this. Let’s say that on average, I take 4 trades a week and my trades last typically two weeks or something like that. You might say that I have on average maybe about 8 trades open at any given time.
Now, depending on my win rate, my losing streak is going to depend clearly on my win rate. So, my win rate is 80%. I’m probably not going to have a whole lot of 8 losing trades streaks but if my win rate is 25%, I may have a ton of 8 trades losing streaks.
What you need to do is figure those two things out and also, you need to look out how your broker calculates margin because they all have different levels where they actually just will liquidate all your trades as well.
You need to have all these in line and you need to know your risk. If you use fixed fractional and you risk 1% per trade, then you need to know that too. Let me give you an example. Let’s say that Terri has a 100,000 to trade and he doesn’t want to put all 100,000 with the broker or even if you would’ve break it up and have several brokers hold that money, which is completely understandable.
Let’s also say that Terri takes on average about 3 trades a week, wants to compound the money but doesn’t want to give all the money to the broker. Risks 1% per trade and has about 50% win rate.
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By Walter Peters (FXJake) and Hugh Kimura (Trading Heroes)In this episode of Truth About FX, Walter talks about the rule of thumb in compounding your money. And what are these two rules that you should always keep in mind? According to Walter, there’s an easy trick that will let you identify your risk margin and some tools that will help you spread out to other platforms. And what is this one thing that you need to dig into before deciding on any broker. Find out more in this episode.
Download (Duration: 05:47 / 13.9 MB)
In This Episode:
00:35 – rule of thumb01:43 – figure two things out02:40 – 20-trade multiple04:57 – maturing as a trader
Tweetables:Check how your broker does the math
@TruthAboutForex http://fxtr.co/a6" rel="noopener noreferrer">[Click To Tweet].Find tools that can help you [Click To Tweet].Spill the eggs in different baskets [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Terri asked. He is making money trading and he has a trading account but he knows that it’s not a good idea to keep all your money in trading account. So what is the rule of thumb when it comes to putting money at a broker, pulling it out and stuff like that?
Walter: So Terri wants to compound his accounts. It’ll depend. What I would say is this. What you need to do is come up with a number of trades that you need to have sort of bank in your account so that you are able to withstand one a drawdown: a losing streak; and two, able to maintain the account if you have multiple trades open.
The way I’ll look at it is like this. Let’s say that on average, I take 4 trades a week and my trades last typically two weeks or something like that. You might say that I have on average maybe about 8 trades open at any given time.
Now, depending on my win rate, my losing streak is going to depend clearly on my win rate. So, my win rate is 80%. I’m probably not going to have a whole lot of 8 losing trades streaks but if my win rate is 25%, I may have a ton of 8 trades losing streaks.
What you need to do is figure those two things out and also, you need to look out how your broker calculates margin because they all have different levels where they actually just will liquidate all your trades as well.
You need to have all these in line and you need to know your risk. If you use fixed fractional and you risk 1% per trade, then you need to know that too. Let me give you an example. Let’s say that Terri has a 100,000 to trade and he doesn’t want to put all 100,000 with the broker or even if you would’ve break it up and have several brokers hold that money, which is completely understandable.
Let’s also say that Terri takes on average about 3 trades a week, wants to compound the money but doesn’t want to give all the money to the broker. Risks 1% per trade and has about 50% win rate.