Why your bet size determines what quantity you'll be able to create

You’ve most likely detected this before…

“The larger you risk, the upper your returns.”

So is that this true?

Well, yes and no.

Here’s why I aforesaid yes…

Let’s say your mercantilism strategy features a positive expectancy and generates a come back of 20R annually. Also, you've got an honest size $100,000 mercantilism account.

So, what quantity are you able to create from your trading?

Well, this relies on what quantity you’re risking per trade.

If you risk $1000, then you'll be able to create a median of $20,000 annually.

If you risk $3000, then you'll be able to create a median of $60,000 annually.

If you risk $5000, then you'll be able to create a median of $100,000 annually.

This is a similar strategy, same account size, and same merchant.

The only distinction is your bet size (or risk per trade). the larger you risk, the upper your returns.

Now…

Here’s why I aforesaid no…

If your bet size is just too massive, the chance of ruin becomes a clear stage. this implies you've got the next risk of reprehension your mercantilism account — and it reduces your mean value.

If you wish to grasp the maths behind it, go scan this risk management article by ED Seykota.