Proof that optimizing trade risk can drastically affect trading profits

Three traders all have identical trading statistics and each enter and exit their trades on the same instruments at the same price at the same moment, each start with the same 1000 equity level.

The difference between their relative profits after 40 trades is due to their variation in how much they risked on each trade.

Each trader had a historical 50% winner to loser ratio and had a risk reward ratio of 2.3 : 1

Which trader below is most like yourself?

Trader 1 is a bold risk taker who decides to risk 45% of his equity on each trade

Trader 2 is a conservative old school trader who decides to risk 15% of his equity on each trade

Trader 3 didn't know how much to risk so decided to use the optimal risk formula to determine his risk amount.

Take a good hard look at the difference in their profits after 40 trials before you view the results at the bottom of this page

Bold Trader 1 who risked 45% on each trade has 9571 equity after 40 trades (Black line)

Conservative Trader 2 who risked 15% on each trade has 14,548 equity after 40 trades (Red line)

Optimal risk Trader 3 who calculated his optimal risk to be 28.2% has 29,160 equity after 40 trades (Blue line)

Download formula here

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As you can clearly see, the trader who optimized his risk percentage made more than 3 times more profit than bold trader 1

and 2 times more profit than conservative trader 2, this simulation shows alternate winning and losing trades 20 of each, but running 20 losers followed by 20 winners would have exactly the same results.

If you are like trader 1 and trader 2, you can improve your long term trading performance by using this formula, and assuming you have the intelligence to understand that optimizing trade risk is far more important than where you enter and exit then the $10 cost of this formula will be repaid many times over.

Most professional traders struggle to achieve a winning trade percentage of more than 40-50% and a risk reward ratio ( average winning trade profit / average losing trade loss) of more than 1.9 - 2.0 : 1.

But how the pro's achieve incredible returns year after year, is more to do with how they manage the risk on their accounts. This is the main reason why so many new traders either fail to make healthy returns or wipe out their accounts all too often, but the seasoned pro traders are their in the market year in year out.

Depending on your own unique trading statistics, you can rest assured that the values you input into the Excel spreadsheet will calculate your optimum risk amount EXACTLY.

All the finer points of how to use this formula are set out in clear and simple form in the word document that accompanies the Excel formula spread sheet.

If you are STILL NOT CONVINCED there are more examples here!