Cash Risks As Much As 25% Equity

...continued from yesterday

David Cash opened his first futures trading account in April of 1999 and lost all the money in it within six months! Two years later, he won the World Cup trading competition in the futures division with a 53% profit on his money!

He used Larry William’s money management formula to determine how much to bet on any one trade. The formula is

Contract Number = (Risk % x Account Equity)/Trade Stop Dollar Amount

For “Risk %”, he recommends risking between 5% to 10% of equity per trade for new traders and between 10% to 20% for experienced traders. He says he himself has traded beyond 25% of equity at times.

He risks more than ten times the 2% risk that most trading coaches I know of recommend! That's astonishing. Come to think of it, by risking 20% of equity on each trade, you only have to have 5 consecutive losers to wipe out your account (5 x 20% = 100%)! Even 2 consecutive losers will cause a 40% decrease in equity.

David Cash's advice is to “trade a risk percentage that is large enough to generate strong equity growth, but one that is not so large that the drawdown represents an unwieldy percentage of your equity”.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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