Risk in Smaller Accounts

[captjoe 10]

I have 4 basic trading account all set up for different strategies. I am now opening a small account to trade the e-mini. I'm starting with $20,000.

Are their suggections on how much risk per contract I should follow?

[UKTraderGirl 10]

There are so many ways to answer this question!!!

 

When first starting with a real money account i would just for a short while trade the barest minimum possible- just while you get a feel for any differences that occur between demo and real money.

 

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You may want to risk say... for example 2% of your capital on any trade.

 

There are several ways to do this... you can go down the route of trading a fixed number of contracts every time, and hence your stop is always the same distance away on all your trades.

 

Or, you could work out the current volatility of the market (perhaps using average true range, ATR). Using this, you realise that greater volatility usually calls for greater stoploss distances to make a strategy effective. Less volatility allows for tighter stoplosses. Hence, on big volatility trades, risking 2% capital will mean buying fewer contracts, and on low volatility, purchasing more contracts. It may also mean that in these very volatile times you might not want to purchase any contracts at all.

 

The above is just a rough idea of an area you might want to explore, and really only touches the tip of the iceberg on this topic. But, in my experience, it is very worthwhile using 'dynamic' stops/money management. It means you are more comfortable trading volatility, as it will only effect your account in a similar way to a non-volatile trade.

 

Anyway, not sure that the above makes sense, just something to think about.

 

Good luck.

[stanlyd 10]

Well I agree with UK girl in terms of the dynamic stoploss. I know a lot of traders start off and maybe continue to use a fixed stop on trades, but I have found this to not be effective for me. Your stop should mean something in relevance to when,where and how your trade is occurring. Certainly when using larger stoploss due to increase volatility , the corollary is that you want you targets to also increase to keep your R/R within your plan. With $20,000. Hmm I would back test some of your strategy first. see what percent results your getting, then use that to model a decent R/R strategy and that should tell you how many contracts to trade, at least as a starting point.

[Minis Trader 10]

How much to risk is important in any strategy but you also have to consider the reward side of it. If you are willing to risk 2% on a trade but your profit goal is 1/2 of 1% it only takes a few loosers to see large drawdown in your account.

 

Here are my rules on one of my setups for the YM:

* Go long (or short) 3 YM contracts

* My profit target is +8 on 1st contract, +16 on second contract and the last target is left open (let my winner run)

* My innitial stop is set at 20 ticks

* I move my stop up to break even once my second contract is taken off.

* I then trail my stop by 20 points and allow the last contract to get taken out by the trailing stop.

 

Is this system perfect "NO" will every trader like this "NO" but for me it pays the bills.

 

Happy Trading

[BlowFish 10]

http://www.traderscalm.com/ror.html

 

might interest you.

[tlfx 10]

Risking 2% from your capital is acceptable i think. 5% is ok if you're a veteran but i won't go for 10%. Capital prevention comes first IMHO.