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The Challenge of Regaining Lost Equity

The Challenge of Regaining Lost Equity

2010-05-26 23:50:00
Richard Krivo, Trading Instructor
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Instructor’s Response:

 
Sure...
 
Let's say that you have a $1000 account and 25% of it, $250, is lost and you now have $750 in the account. $250 is 33% of $750. So the percentage that you have to recoup, 33%, is actually greater than the percent that was lost, 25%.  The same rationale would be employed with the remaining percentages.
 
Looking at the numbers on this grid, it becomes quite apparent why one should not risk large percentages of their account at one time.  The recommended maximum amount to risk at one time (not per trade but at one time no matter how many trades are open) is no more than 5% of the account size.
 
chart 5 26 10

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