Case #001
Let us assume that you have a $25,000 account with a profit target of 10% in 60 days with a maximum trailing loss 5% allowed. What would be your daily profit target and daily allowable loss.
To calculate your daily profit target, we need to first determine the total profit you’re aiming to achieve in 60 days. A 10% return on a $25,000 account would be $2,500 (0.10 x $25,000 = $2,500).
To determine your daily profit target, we can divide this total profit by the number of trading days in 60 days, which is typically around 42 days. So your daily profit target would be:
$2,500 / 42 = $59.52 (rounded to the nearest cent)
This means you would need to make an average of $59.52 in profit per day to achieve your 10% target in 60 days.
Next, we need to calculate your daily allowable loss. You were given a maximum trailing loss of 5%, which means that if your account falls by 5% from its highest point, you would need to exit the trade to limit further losses.
To calculate your daily allowable loss, we can use a simple formula:
Maximum Allowable Loss = Account Size x Maximum Trailing Loss
Maximum Allowable Loss = $25,000 x 0.05 = $1,250
Dividing the maximum allowable loss by the number of trading days in 60 days, we get:
$1,250 / 42 = $29.76 (rounded to the nearest cent)
This means that your daily allowable loss would be $29.76 per day. If you lose more than this amount in a single day, you would exceed your maximum trailing loss and need to exit the trade to limit further losses.
Lets us assume that we are using 8 instruments. We could calculate the profit per trading instrument and also the loss per trading instrument.
If you’re using 8 trading instruments, you’ll need to divide your total profit target and daily allowable loss by 8 to determine the profit and loss targets for each instrument.
Total Profit Target = $2,500
Profit Target per Instrument = $2,500 / 8 = $312.50
This means that you’ll need to make an average of $312.50 in profit per instrument over the course of 60 days to achieve your 10% target.
Daily Profit Target per Instrument = $312.50 / 42 = $7.44 (rounded to the nearest cent)
This means that you’ll need to make an average of $7.44 in profit per instrument per day to achieve your 10% target over 60 days.
Next, we can calculate the maximum allowable loss per instrument:
Maximum Allowable Loss = Account Size x Maximum Trailing Loss / Number of Instruments
Maximum Allowable Loss = $25,000 x 0.05 / 8 = $156.25
This means that you’ll need to limit your losses to an average of $156.25 per instrument over the course of 60 days.
Daily Allowable Loss per Instrument = $156.25 / 42 = $3.72 (rounded to the nearest cent)
This means that you’ll need to limit your losses to an average of $3.72 per instrument per day to stay within your maximum trailing loss limit of 5%.
Note that these calculations assume that you’ll be trading all 8 instruments equally and that each instrument has the same potential for profit and loss. In reality, the profit and loss targets may vary depending on the volatility and liquidity of each instrument.