Okay so to answer this I have to elaborate that I trade options contracts and not straight stock prices. The value of an options contract is determined by something known as “the greeks” (delta, gamma, theta & vega). I’m not going to go into each one because each is fairly extensive but just understand that each one helps determine the value of a contract.
The very basics to understand about options contracts that they expire and can be purchased at various strike prices. Unlike stocks where if the ticker is @ 100/share and that’s what you pay, I can buy an options call at the “strike” price of $90 and an expiry of 30 days. Thus if the price is anywhere above $90 after 30 days (even if it drops to $95) - I make money, despite that the stock was trading at 100.
Contracts also have their own intrinsic value. If I buy a 90 call strike and the a ticker moves from $100 to 120, then the intrinsic value of the contract itself has gone up from what I paid for it. I can then opt to sell that contract at its increased value for profit before waiting for its expiry.
When I say I never open a position that risks more than 1% of my account, I mean that I will never buy a set of contracts that is worth more than 1% of what I have. For debit options contracts, the most you can lose is what you paid for the contract(s).
However let’s say that stock moves downward, unless it is a very quick dive the contract will still have some (but not much) intrinsic value - in the event that it bounces back up. So if in your example of I have an account of 1000 euros and I open a contract position worth 10 euros which then drops, I can opt to sell it when it as an intrinsic value of 5 euros (losing 50% of what I put in vs a value of zero where I lose the full 10 euros).
I learned this as upside/downside potential and it certainly factors in to when I think about entering a position but it’s only one of many factors
20-day SMA, 30-day EMA, 50-day SMA, & 180-day SMA lines + the occasional Fibonacci indicator
