Thread: 5% risk per trade?

5% is much too large.


Max should be 1 percent.

Here is a tip:

1) The major money makers are those that take small profits but on a huge scale. Think 20% p.a on $10M

2) The work form home, worried out, shedding traders opt for home runs by taking on too large risk.


Which side do you wish to be on?

No you can't. Only 30% off losing the lot. Is that the best way to conduct a small business? What about reassurance?

I read a white paper on professional trading and they basically said anythig over a 30% reduction on the acount and it's all over. Should you ever handled O.P.M. they will start pulling money out with more than 15% losses. Therefore why large capital main concern is maintaining drawdowns to less than 10%. Bernie Manderhoffs enormous success was not his gains (12 percent) but the truth that he explained no losses. Shame it was a complete scam.

Originally Posted by ;

Of course, at higher risk, your drawdowns are going to be higher. At 5 percent risk, I saw drawdowns around 70 percent or over. I am unsure whether humans can bear such losses.

Originally Posted by ;

A profit factor of 1.25 isn't uncommon to get a mechanical system, at least in my experience.

Are you sure you're going bankrupt following 100 trades? This is 5% risk of equity that is present, not 5% of starting equity.

I believe that it's more of this premise you've placed on your advantage. 50% gain rate and a 0.25 expectancy is rather the large flyer.

But anyhow, I try to stick to less than 2% myself. On my guide accounts I'm often risking ~0.50-1.50 percent based on how confident I am in the commerce.

Yes, I could exchange for more risk, and yes this would positively impact my returns very much so, but my win rate for scalping is close to 51%, and that I know full well that streaks of 5, 10 losers in a row can happen more often than desirable (along with streaks of champions, which is much more desired obviously but in my head I know they'll eventually even out.) So ideally, I'd rather lean toward funding preservation and handle a losing streak in which it doesn't hurt me overall over a couple percentage points. I like knowing that even in my worst of months, I didn't do much harm in any way.

There are two main thing to think about as well if we look at the plogical aspect of risk:

1) I'm also helping to keep my emotions in check by keeping losses limited, because seeing a bigger drawdown might influence a prospective trading/execution choice. . Such as hunting for a trade to get back in the market when there isn't a fantastic trade to be had, or risking to return some reductions. . .etc... all of the traditional things that kill accounts with time.

2) I'm giving myself a lot of 'fudge' room. The best traders are human and humans can make mistakes. If I screw up something (accidental or by breaking a principle of mine) it doesn't significantly affect my overall returns because I have limited my risk each trade as such. Additionally, if I detect a bad pattern of behaviour, lasting numerous transactions (like a series of revenge trading, etc) then even with the time that it takes to realize this I'm not hurting my account much whatsoever.

If you begin risking more, say 5-10 percent per commerce, and undergo those plogical/human grabs... you might have done some serious damage before you realize what happened. After all, 10 transactions in a row at 5% risk would decimate an account.

Originally Posted by ;

I think it's more of the premise you have put on your edge. 50% win rate plus a 0.25 expectancy is quite the large flyer.

Hmmm, what can you mean by large flyer? The system is too good to be true? I have probably tested 50 progr in the previous year. Nearly all neglect or show minimal profit, however there were some which produced profit variables in excess of 1.25 over 11 currency pairs out of 2001-2012 (hence the systems are sufficiently robust IMO, with a sample size of 1,000 ). I think 1.25 is very conservative for a tradable mechanical method. I might be wrong, of course.

Originally Posted by ;

Hmmm, what can you mean by large flyer? The system is too good to be true? I have probably tested 50 progr in the last year. Nearly all neglect or reveal negligible profit, however there were a few which produced profit variables in excess of 1.25 over 11 currency pairs out of 2001-2012 (so the systems are sufficiently robust IMO, using a sample size of 1,000 ). I think 1.25 is very conservative for a tradable mechanical method. I could be wrong, of course.

Query: As not all edges last over time, and in most instances their returns slowly slip in the sound of the market, is 5% risk per trade likely to give you enough space to spot when something is wrong prior to your account carries a serious strike?

Still another consideration: Can you exchange a $100,000 account eager to risk $5,000 (5%) per transaction? If a smaller sized account be any different?

How about risking $50k about a thousand dollar account?

Often people justify risking a larger % of the account if their account is smaller, however in the same time that it becomes more likely their account won't ever see a bigger equilibrium (at least, due to profits that is) due to raising the likelihood that mistakes/errors/losing streaks chop down the account significantly.

I'm not trying to be too strict in what is 'right/wrong' in gambling. . However, I do want to focus on capital preservation as it pertains to the human aspect of trading (errors/rule breaking/emotional trading/etc. .) Since this is posted after all in the 'rookie' segment.

Jack, I have not praised anybody on a forum before but your articles are very informative on a subject that has been in my mind a lot lately.

Thanks for you time and explanations on an acceptable % risk of an account each trade/position. Invaluable.

Originally Posted by ;

Query: As not all edges last over time, and in most cases their yields slowly slip into the sound of the market, is 5 percent risk per trade likely to give you sufficient space to identify when something is wrong before your account takes a serious strike?

Still another consideration: Can you exchange a $100,000 account eager to risk $5,000 (5%) each transaction? If a smaller sized account be any different?

How about risking $50k about a thousand dollar account?

Often individuals warrant risking a larger % of the account when their account is smaller, but in the...

I conducted a few more Monte Carlo simulations and concluded that 5 percent is excessive. In fact I will probably stick to 0.5% risk. I spent a while over the last few days studying Cashflow Quadrant (Rich Dad Poor Dad series). The key to wealth is not so much in taking huge risks, but in using other people's money (OPM). No person or bank is going to give me cash with 20% drawdown. I will treat my trading because a professional hedge fund and search for an expected drawdown of 10% (max 15%) over my trading life. Professionals try to minimise drawdown when maximising their profit:drawdown ratios. Time to be serious.

What does % risk regardless of when speaking so baselessly. I use 5 percent on systems when I finance an account with 10% of my trading capital so in theory it is 0.5% risk per trade

The idea that 10% or less is considered an acceptable drawdown doesn't make sense to me.

I believe we attempting to use the conventional of hedge funds and institutional traders and implement that to us retail traders. These guys have customers. .

I personally believe 20-30 percent drawdown to get a retail trader is normal. If you choose to trade for others in the future, then that is a different story.

However, for the most part retail traders ought to be able to withstand bigger drawdowns and also can push for bigger gains (excess of 200%).

imo

Originally Posted by ;

I believe 5 percent can be done depending on the trading egy. 1-2% is generally thrown out there for beginners since they do not know very much about what to expect from their egy, so it can help to not risk more than this to keep them from blowing before studying how to trade and what sort of drawdown to expect from their own system.

Yes , newcomer need to trade with consistently lowest risk , since they do not understand the real market principle and do not understand how much volatile this market . But practical is, they always take huge risk than senior traders for making profit very rapidly . As a result they become failure due to lack of exact risk managing plan.