Day Trading For Canadians For Dummies by Ann C. Logue

Author:Ann C. Logue
Language: eng
Format: epub
Publisher: Wiley

N is the number of contracts or shares of stock you should trade, f is the fixed fraction of your account that you have decided to trade, equity is the value of your total account, and trade risk is the amount of money you could lose on the transaction. Because trade risk is a negative number, you need to convert it to a positive number to make the equation work. Those vertical bars in the equation (||) are the sign for absolute value, and that means you convert the number between them to a positive number.

This means that if you’ve decided to limit each trade to 10 percent of your account, you have a $20,000 account, and the risk of loss is –$3,500, your trade should be what is shown in Figure 9-5.

Figure 9-5: An example of a fixed fractional trade calculation.

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