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Thread: 5% risk per trade?

  1. #1
    I had been running through some montecarlo simulations, with various levels of risk. Many people recommend 1-2% equity risk per trade, which is fine. However, is anyone trading over these values? I assessed a trading platform using 2,500 theoretical trades at 5% risk, 50% success rate, 1.25-to-1 reward-to-risk, and the numbers are mind-boggling ($10,000 beginning equity turned into $1b equity).

    Of course, at higher risk, your drawdowns are going to be higher. At 5% risk, I saw drawdowns up to 70% or over. I'm unsure whether individuals can bear such losses.

    Ideas?

  2. #2
    Quote Originally Posted by ;
    So I was running through several montecarlo simulations, using various levels of risk. Most people recommend 1-2% equity risk a trade, which is fine. But is anybody trading above these values? I assessed a trading platform using 2,500 theoretical trades at 5% risk, 50% success rate, 1.25-to-1 reward-to-risk, and the amounts are somewhat mind-boggling ($10,000 beginning equity turned to $1b equity).

    Of course, at greater risk, your drawdowns are going to be greater. At 5% risk, I watched drawdowns around 70% or above. I am unsure whether individuals can bear such reductions....
    for monte carlo i use an excel spreadsheet. At 50% winrate and 1.25 r/r you will observe that it is possible to go broke after 100 transactions. This is a bad system to begin with to not mention 5% risk. If it had been 50% and 1.8 reward risk which would be okay.

  3. #3
    I used 10%. Down to 5%. I don't reduce bet after losing, so 20 losses out.

    Since I'm discretionary, find that bigger bet motivates me and outcomes are better. 1-2 percent toooo little.

    However, I go papertrade following 3 net losses from high ie 15%. Ensure that my system okay and then back. Lowest I arrived with this I think was 6 reductions.

    Valleys keep little

  4. #4
    Quote Originally Posted by ;
    to get monte carlo I use an excel spreadsheet. At 50 percent winrate and 1.25 r/r you may see that it's possible to go broke after 100 trades. This is a bad system to start with not to mention 5 percent risk. If it had been 50 percent and 1.8 reward risk that would be ok.
    A profit factor of 1.25 isn't uncommon to get a mechanical system, at least in my own experience.

    Also are you sure you're going broke after 100 trades? This is 5 percent risk of present equity, not 5% of starting equity.

  5. #5
    Quote Originally Posted by ;
    A profit factor of 1.25 is not unusual for a mechanical system, at least in my experience.

    Are you sure that you're going bankrupt following 100 trades? This is 5% risk of present equity, not 5% of starting equity.
    Not bankrupt. i misspoken. Nonetheless, it's highly possible you will lose cash in 100 trades.you can lose 8-9 units of risk. Multiply that by 2% and that's a 18% reduction in 100 trades. That system for me is out of the question.

  6. #6
    Quote Originally Posted by ;
    Of course, at greater risk, your drawdowns are going to be greater. At 5 percent risk, I watched drawdowns up to 70 percent or above. I am unsure whether individuals can bear such reductions.
    Thoughts?
    This is an issue with learning to trade. . .too much concept. The only way you will ever know how much you can bear losing is to begin losing. Also, you need to deal with the constant truth of shedding, separate from the cash, beating on your mind. I've been through some very long losing streaks, but hung in since I did not go beyond my reduction limitations.

    It is like anything in life, concept is excellent, and essential, but the concept needs to be put in to practice. The concept is then informed by the results and the concept will change. Then more program, more results telling the concept, more adjustments to concept, ad infinitum. It is called praxis. Get to testing and trading those theories.

  7. #7
    Quote Originally Posted by ;
    This really is an issue with learning to trade. . .too much theory. The only way that you will ever understand how much you can bear losing is to start losing. Additionally, you have to deal with the constant fact of losing, separate from the cash, beating on your mind. I've been through some very long losing streaks, but suspended in because I did not go beyond my loss limits.

    It's like anything in life, theory is excellent, and necessary, but the theory needs to be put into practice. The results then notify the theory and the theory will change. Then more program,...
    This men said.

    DOn't be an excel spreadsheet trader either. I see a lot of that within this forum.

    1-2% risk makes sense only if you're just beginning and don't have any clue to what the hell you do.

    As soon as you have an advantage in the market, increase your gaming size! Utilize the leverage but still keep that reasonable risk per your method.

  8. #8
    Quote Originally Posted by ;
    I am new to forex. However, about 2 weeks ago began testing long term charts and utilizing 5%-7% risk free of sl or tp, this of course in demo account. And less then 2 months I am up 60 percent (this is principally as a result of no tp and quite good win ration).

    I think its viable in long term if sl and tp is set up and win rate is kept high.

    I will try it for few months.
    If you're not utilizing a stoploss, how can you know how much you are risking per transaction? You must at least possess a plogical SL and after that you need to continuously monitor the transaction.

  9. #9
    Quote Originally Posted by ;
    if you're not using a stoploss, just how do you know how much you are risking per transaction? You need to at least have a mental SL and then you want to constantly track the transaction.
    Yes had a mental SL, of around 6%. Currently I use sl of around 3%-5%. At the end it all comes down at how confident you are in the particular trade.

  10. #10
    23
    Guest
    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?

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