How Much You Risk Your Account Per Week?

[SwingTradinJay 10]

  diablo272 said:

I believe that would be called luck, unless those people had systems with a 100% winrate.

 

and I believe you are right

But actually, he had MANY winning days in his 3 month heavy trading period. He has since slowed down, because he thinks a big part IS luck.

 

Which now takes us on another path: what is the role of luck in our trading, even if we use a semi-mechanical system?

 

It's good to know risk management-because we can't always be lucky, but how do we know WHEN we are "hot"? And figuring out when and how to "get heavy" with our size would help.

 

It's sometimes a gut feel for these natural born traders...

 

I guess a good experienced trader is a lot like a poker player. They get a prime hand and keep calling. Then the river card is flopped and it's all in..

In that situation the risk is HUGE, but they have a good feel for their opponent and if they have a full-house...it's pretty much a win

[gandalf33 10]

  TraderBG said:

The market doesn't care if i just lost a certain percentage of my account, so unless it's for psychological recuperation or reassessing my system's reliability, I wouldn't see a point in halting my for the remainder of the week simply because I'm down. But that's just me.

 

Exactly!

 

By the way, how do you traders manage the maximum risk on a trade? Don't you have all fixed stop-losses or if not fixed, but e.g. ATR multiplied by something, in what way do you ensure it's never more than 2% of the trade? Do you experience your SLs getting bigger as your equity curve raises?

 

I'm asking because I have a fixed SL (so far). Meaning when profitable, I'm risking less and less with every trade.

 

Does your position sizing formula do the job?

[Hotch 10]

Really, I think most of you are missing the point.

 

How much you should risk isn't a constant, it depends on how good you are at trading. If you're trades are good, then you should risk more, it's a simple concept.

 

IF you are consistent, then you should use your Kelly value, adjusting it for Risk of Ruin.

 

Losing streaks. Sure, you'll have em, but you'll also have winning streaks. It's all part of the game.

 

Mainly the thing that stops people risking a larger amount is FEAR. You shouldn't up your risk and try to live with the fear, but just take note of what you do, look back and see what could of been, gain confidence slowly, and you'll get there.

 

If you're not consistent, then OBVIOUSLY you should risk a small amount...until you become consistent, then you can MATHEMATICALLY work out what you should be doing, for most it will be more then 2%.

 

 

 

Kelly criterion - Wikipedia, the free encyclopedia

[TraderJean 10]

I don't break down risk by individual trade. I place stops where I think they are needed for a successful outcome on the trade. The more confidence you have the tighter the stops get. This works in a liquid market like ES, but won't work for YM. Liquid markets allow you to use tighter stops illiquid markets you must use wider stops.

 

My platform (Infinity AT) allows me to set an automatic daily loss limit which I set to a certain dollar level $1000. For ES I think you need to have at least 10K in your account and I think you need to be able to risk at least 1K a day but no more. If you lose that you're done for the day.

 

yours in trading

 

Jean

[robertm 10]

  TraderJean said:

I don't break down risk by individual trade. I place stops where I think they are needed for a successful outcome on the trade. The more confidence you have the tighter the stops get. This works in a liquid market like ES, but won't work for YM. Liquid markets allow you to use tighter stops illiquid markets you must use wider stops.

 

Jean

 

Where our stop is has nothing to do with how much we risk on the trade. The difference between entry and our stop is what our % risk calculation is based upon to ensure our risk is constant across each trade. How this is determined - technical, % daily range, ATR multiple etc is a factor of what gives us the best results for our system.

 

If our risk at x% = $1000 per trade, and we risk $300 on each contract (to use contracts as an example), then we can trade 3 contracts on that trade.

 

If your system states you can run a tighter stop (which should be based on sound testing and evidence rather than confidence), then you are risking less per trade, and can trade more contracts while still only exposing $1000 per trade as your maximum loss.

 

Your performance is then a measure of your risk multiple, 1:1, 1:2, whatever the maximum is you can get from your system. If you use technical targets, then maybe you opt out of trades where your technical stop & profit result in a risk:reward that brings the probability of system success too low (ie, lower than 1:1).

 

Liquidity has nothing to do with placing our stops unless you are a massive fund manager or trading something so illiquid you probably shouldn't be doing it in the first place, liquidity is more to do with whether our system is tradable on that particular market, instrument or individual equity.