The glass ceiling is the level of cash at which the stress level suddenly and unexpectedly increases. Thinking of a specific sum that "causes" this effect in the psyche will indicate the size of the position exposed to risk.
It also happens that traders talk about the "glass ceiling" when specifying the size of the account they have with a broker, but even so, the problem of the size of a single position remains at the root, since it is most often referred to as a percentage of the total account.
Explanation of what is the size of the position exposed to risk. For example - with an account of $100,000, the size of 2% of the account is exactly $2,000. When we enter the market with a position of such size and in a situation when it is closed at SL we lose it - we say that we have exposed such a position to risk (losses).
It happens that such feelings are aroused by the size of the position expressed in lots.
Keeping an eye on the right profit/risk ratio gives us "mathematical" but not psychological security
Many experienced traders say that you should not put, for example, more than 2% of your account at risk on a single position and no more than 6-8% of your account on several positions at the same time. This 2% has more of a mathematical rationale and less of a psychological one.
Note that dividing an account of 100,000 into parts of 2,000 each (i.e. 2%), you would theoretically have to have 50 losses in a row to lose it all. Having a decent system and making sure to stick to the rules of the system this is unlikely, isn't it?
Choosing a position with a profit to risk of three to one gives us "mathematical" safety.
Simplifying - using systems with a profit to risk ratio of more than three to one, already with 30% of profitable trades (which is about one in three) we will get a nice profit.
Simulation of 30% of profitable closed at 3:1 and 70% of losing at SL
With 30% profitable trades on 100 trades, we will "earn" 30 x 3 x 2000 = 30 x 6000 = 180,000
Here 30 means the number of positions per hundred, the part 3 x 2000 means positions closed at a profit of three to one.
In the same 100 transactions, losses will be: 70 x 2 000 = 140 000
Here we have 70 positions each of 2,000 closed at a loss.
Profit = 180,000 - 140,000 = 40,000
Conclusion - even if only every third transaction results in a profit and the others in a loss - we come out with a profit.
Percentage-wise, with a very good profit, over the course of 100 transactions we "earned": initial capital = 100,000, final capital = 140,000, percentage profit = 40%
Learning to think in terms of multiple transactions allows you to keep a healthy distance from each of the individual inputs. Thinking in "series of trades" frees the psyche from having to focus on the importance of a single result, makes it easier for a trader to get over a single "profit" or "loss" and thus his trading is burdened with less stress. It is worth recalling this, as it is one of the necessary elements of maturing to the level of the best.
However, it turns out that such calculations are less important for our psyche, which pays more attention to the size of the actual capital.
In this regard, the level of the glass ceiling begins to have a critical psychological significance.
It also happens that traders talk about the "glass ceiling" when specifying the size of the account they have with a broker, but even so, the problem of the size of a single position remains at the root, since it is most often referred to as a percentage of the total account.
Explanation of what is the size of the position exposed to risk. For example - with an account of $100,000, the size of 2% of the account is exactly $2,000. When we enter the market with a position of such size and in a situation when it is closed at SL we lose it - we say that we have exposed such a position to risk (losses).
It happens that such feelings are aroused by the size of the position expressed in lots.
Keeping an eye on the right profit/risk ratio gives us "mathematical" but not psychological security
Many experienced traders say that you should not put, for example, more than 2% of your account at risk on a single position and no more than 6-8% of your account on several positions at the same time. This 2% has more of a mathematical rationale and less of a psychological one.
Note that dividing an account of 100,000 into parts of 2,000 each (i.e. 2%), you would theoretically have to have 50 losses in a row to lose it all. Having a decent system and making sure to stick to the rules of the system this is unlikely, isn't it?
Choosing a position with a profit to risk of three to one gives us "mathematical" safety.
Simplifying - using systems with a profit to risk ratio of more than three to one, already with 30% of profitable trades (which is about one in three) we will get a nice profit.
Simulation of 30% of profitable closed at 3:1 and 70% of losing at SL
With 30% profitable trades on 100 trades, we will "earn" 30 x 3 x 2000 = 30 x 6000 = 180,000
Here 30 means the number of positions per hundred, the part 3 x 2000 means positions closed at a profit of three to one.
In the same 100 transactions, losses will be: 70 x 2 000 = 140 000
Here we have 70 positions each of 2,000 closed at a loss.
Profit = 180,000 - 140,000 = 40,000
Conclusion - even if only every third transaction results in a profit and the others in a loss - we come out with a profit.
Percentage-wise, with a very good profit, over the course of 100 transactions we "earned": initial capital = 100,000, final capital = 140,000, percentage profit = 40%
Learning to think in terms of multiple transactions allows you to keep a healthy distance from each of the individual inputs. Thinking in "series of trades" frees the psyche from having to focus on the importance of a single result, makes it easier for a trader to get over a single "profit" or "loss" and thus his trading is burdened with less stress. It is worth recalling this, as it is one of the necessary elements of maturing to the level of the best.
However, it turns out that such calculations are less important for our psyche, which pays more attention to the size of the actual capital.
In this regard, the level of the glass ceiling begins to have a critical psychological significance.
