Whats Your Risk Percentage Per Trade?

[Obsidian 10]

There are times I hold 5 positions open...if I risked %2 for each, thing could get ugly

[SunTrader 10]

Or another way to look at it is - is a particular trade 10 or 20 times more likely to win than another?

 

Doubtful.

[4EverMaAT 10]

 

Similar yes but not the same.

 

Unless .......... you go "all-in" then it is win or (blow your account) go home.

 

But for anyone to say that a routine 2-3% risk should adjusted to 10 or 20 times that amount because the probabilitites suggest so just doesn't understand what a career in trading entails.I understand one size doesn't fill all but seriously folks.

 

A doubling of a 5% risk to 10% is reasonable or something along those lines but going from single digits to 30, 40, 50% is playing with fire.

Definitely! I made a lot of backtest experimenting with how much I could risk and get away with it, 4% was the highest I could go, anything higher would blow the acount, it's hard to say how much you can risk for any given method, I believe it is a very individual number and how good your system is and how good you are as a trader, with some trading methods you could possible risk more or less depending on profitability, win ratio, risk to reward etc, there is so many factors playing,

 

The point was that if your strategy revolves around predicting high probability direction movement, you should be betting considerably more than lower probability signals. This is consistent with the oft repeated (but never explained) "Let your winners run and cut your losses short" In order to let winners run, you either need to put it all in on initial entry, or space it out (pillar, pyramid) as the direction is favorable. This is where position sizing is critical, because it spreads out your risk and you can adjust profit targets to bank larger profits. I invite people to use the ProfitKeeper equity tool to manage their exits. It forces you to be profitable if you use position sizing that matches your strategy. Then you can lock in profits depending on how much you risk.

 

How much one chooses to risk is up to them. But yes, the more positions you put on for the same account balance, the greater the risk of ruin. The good news is that you can apply betting strategies to minimize the risk. One example, if you were betting in 20% per opportunity to trade (either a single trade or series of trades), you can have a profit target of 60%. If you were betting in only 5%, the profit reward might only be 10%. As demonstrated in profitkeeper, you can auto-adjust the amount of profit you want to take depending on your strategy.

 

And backtesting, beyond testing the fundamental aspects of the system, is worthless IMO. Walk-forward portions, particularly forward testing is useful so that you can visualize if the core aspect has merit. A side benefit (with historical data) is that you can step test (optimize) particular parameters to see what would have worked better in certain market conditions. Without tick data, this would be difficult to accomplish accurately.

[BlowFish 10]

Definitely! I made a lot of backtest experimenting with how much I could risk and get away with it, 4% was the highest I could go, anything higher would blow the acount, it's hard to say how much you can risk for any given method, I believe it is a very individual number and how good your system is and how good you are as a trader, with some trading methods you could possible risk more or less depending on profitability, win ratio, risk to reward etc, there is so many factors playing,

 

Not too hard really. The key metric is RoR (Risk of Ruin) as I mentioned early in the thread. This little site tells you all about why you should know it and how to calculate it. TradersCALM - risk of ruin menu Of course you are right that you still have to determine what is an acceptable level to you but this is the way to calculate it. It is also why the original question posed in the thread (and some of the answers) are pretty naive and rather 'dangerous'.

[SunTrader 10]

...... How much one chooses to risk is up to them. But yes, the more positions you put on for the same account balance, the greater the risk of ruin. The good news is that you can apply betting strategies to minimize the risk. One example, if you were betting in 20% per opportunity to trade (either a single trade or series of trades), you can have a profit target of 60%. If you were betting in only 5%, the profit reward might only be 10%. As demonstrated in profitkeeper, you can auto-adjust the amount of profit you want to take depending on your strategy.....

That might be how you look at it.

 

I let the chart (prior time and price action) tell me where my risk is.

 

Don't have a clue what profitkeeper is but then I like to keep things simple.

[BlueHorseshoe 10]

I'm not really interested in 'risk of ruin'. I'm not interested in 'ruin' in terms of my trading account. That money is there because it is money that I can afford to lose. If the account is 'ruined' then I won't be.

 

Many people will say that this is pretty much gambling. I'm under no illusion that trading is anything other than a structured form of gambling in which the trader positions themselves in relation to a range of probabilities (of which risk of ruin is just one). How a trader choses to do this is up to them alone. I am quite comfortable risking the money in my trading account against my perceived probability of return on it.

 

Yesterday someone posted a great link to an article about Taleb and Niederhoffer. Either could go bust; the former could only go bust by slowly 'bleeding to death', whereas the latter could only go bust by 'blowing up'. This was where each had chosen to position themselves within a field of probabilities.

 

It doesn't matter what fancy money management algorithm you use (imagine how sophisticated LTCM's risk management must have been, for example), the only way to avoid the risk of ruining your account is to stop trading it, and if you continue trading, then the only way to avoid the risk of ruin to your finances as a whole is to ensure that you only trade with money that you can afford to lose.

 

BlueHorseshoe

[Trader1 10]

I'm not really interested in 'risk of ruin'. I'm not interested in 'ruin' in terms of my trading account. That money is there because it is money that I can afford to lose. If the account is 'ruined' then I won't be.

 

Many people will say that this is pretty much gambling. I'm under no illusion that trading is anything other than a structured form of gambling in which the trader positions themselves in relation to a range of probabilities (of which risk of ruin is just one). How a trader choses to do this is up to them alone. I am quite comfortable risking the money in my trading account against my perceived probability of return on it.

 

Yesterday someone posted a great link to an article about Taleb and Niederhoffer. Either could go bust; the former could only go bust by slowly 'bleeding to death', whereas the latter could only go bust by 'blowing up'. This was where each had chosen to position themselves within a field of probabilities.

 

It doesn't matter what fancy money management algorithm you use (imagine how sophisticated LTCM's risk management must have been, for example), the only way to avoid the risk of ruining your account is to stop trading it, and if you continue trading, then the only way to avoid the risk of ruin to your finances as a whole is to ensure that you only trade with money that you can afford to lose.

 

BlueHorseshoe

 

fair enough, I guess it depends on what your goal is and how you look at trading, personally I tend to look at my trading as a buisiness, not as gambling, ofcourse anyone could make any investment form into gambling by not using prooper risk and money managent, don't get me wrong, you are ofcourse interely free to risk 100% of your acount if you wanted to, thats no problem if you have a lot of money and can refill your acount after you busted, then I guess it could be a very exiting gambling form:)

[SunTrader 10]

............. and Niederhoffer.....

You do realize he has gone bust ........... TWICE!

[BlueHorseshoe 10]

fair enough, I guess it depends on what your goal is and how you look at trading, personally I tend to look at my trading as a buisiness, not as gambling, ofcourse anyone could make any investment form into gambling by not using prooper risk and money managent, don't get me wrong, you are ofcourse interely free to risk 100% of your acount if you wanted to, thats no problem if you have a lot of money and can refill your acount after you busted, then I guess it could be a very exiting gambling form:)

 

Hi Trader1,

 

Thanks for your reply.

 

I don't risk 100% of my account on each trade. I'll go so far as to reveal a piece of information that I consider quite personal: I currently risk 3.7% of my account per trade. That number was larger when I first began, and will steadily fall as the account grows. If one day I am lucky enough to have several million in the account, then I would be risking less than 1% per trade. These figures are a product of the specific money management algorithm that I have chosen to use.

 

It's great that you view your trading as a business - I'm sure most of us agree that this is the best way to approach it for a whole variety of reasons. I view my trading as a business also.

 

However, a business is still a gamble . . .

 

Shell Oil is a business. Look what happened to them two summers back when they had their 'little' accident. I know someone who made millions in the eighties through a series of successful businesses. Now they're broke, because they kept on 'being in business'. Business has risks. Most new businesses go bust. A business is a gamble.

 

My whole point in contributing to this thread was to point out that the whole 2% risk per trade rule is complete arbitrary nonsense for most traders on here, and shouldn't be taken as gospel. My secondary point was that any sort of risk calculation, though helpful, is ultimately meaningless. If you keep on playing the game long enough no matter how you manage risk, then you will go broke - it's a mathematical certainty.

 

BlueHorseshoe

[BlueHorseshoe 10]

You do realize he has gone bust ........... TWICE!

 

[ heaves big sigh ] . . . Yes, of course I do. That's what the article that I was referring to is about. You can find it here:

 

http://www.traderslaboratory.com/forums/general-discussion/12949-blowing-up.html

 

Nicholas Taleb could also have gone bust. But neither of them could have gone bust at the same time, or in the same manner. Taleb could only ever have gone broke very slowly. Although it is inevitable that both of them would lose everything if they continued trading long enough, the circumstances of this would necessarily be wildly different due to where each trader had chosen to position themselves within a field of probabilities.

 

Someone who risks 100% of their account on a single trade is simply chosing to position themselves at an extreme within the probability field. As one set of outcomes grows less likely, another grows more certain. The trader who positions themselves at the opposite end of this field, risking just 1%, can still go bust, though only very slowly (like Taleb). Both traders are still gambling - they're each just choosing the way in which they can go broke (and as a collorary of this, the way in which they can make money).

 

It's a bit like having to chose a method of execution; you can be shot in the head point blank or you can be slowly starved to death, but either way you're going to end up dead.

 

Jeez, what a morbid little rant that turned into . . .

 

BlueHorseshoe

[BlueHorseshoe 10]

There are times I hold 5 positions open...if I risked %2 for each, thing could get ugly

 

If all five positions went against you you would lose 10%.

 

So, let's say you have an account of $100 and all five positions get stopped out. You've lost $10. Is $10 really a big deal to you?

 

I can't imagine so. I'd happily bet $10 on the flip of a coin. It's a gamble, with a very small amount of money.

 

In money management terms risking $10 of a $100 account and risking $10000 of a $100000 account are the same. But is anyone going to pretend that their emotional reaction to them would be the same?

 

A 10% loss isn't ugly to you, Obsidian; rather, a 10% of your current account equity is ugly. There's a difference.

 

BlueHorseshoe

[SunTrader 10]

I don't claim to be emotionless with my losses because they are a part of any business. But if I don't have the discipline to follow my plan then I should plan to find another business.

 

So maybe it is just me but at 2% loss per position, max 3 positions at any one time (not a recommendation, but what I have found works best for me) it is still a 2% loss per whether or not I double, triple, quadruple my trading account balance.

[tommaso 10]

It's actually quite interesting that most people are aware of money management and the idea of only risking 1-3% of their starting capital, yet they don't try especially hard to incorporate it thoroughly into their trading until they have a bad patch.

 

...

QUOTE]

 

That is absolutely true. There are many concepts which we think we understand well conceptually, but sometimes we really miss to put them in practice.

Diversificating and spreading risk is a real good way to handle risk, even though it may require a little extra patience and method. After all "systematic" money is all about method and discipline.

 

See an example in this thread where i showed a real $$$ case (maybe even excessive) of risk diversfication within algorithmic trading:

 

Diversificating over large folio (algorithmic trading)

[4EverMaAT 10]

That might be how you look at it.

 

I let the chart (prior time and price action) tell me where my risk is.

 

Don't have a clue what profitkeeper is but then I like to keep things simple.

 

If account A has $10,000 and you have 1 lot of EUR/USD long at price x, and account B has $10,000 and you have 4 lots of EURUSD long at the same price x, the risk of ruin is greater in account B since it would take a shorter pip distance from price x to wipe out account B than account A (exactly 4 times less distance). It also takes less distance to reach profit objective in acct B than account A This isn't my point of view, its arithmetic.

 

Letting the "chart tell you where the risk is" is excellent. And if the charts tell you where the all the risk is, the lot/position size would be irrelevant. But we know that's not true with the above example. Perhaps what you meant is that you let the charts determine potential entry/exit points. [edit] In which case you make a choice as to what size to enter and how much to scale up or down.

 

What often happens is we have preferences. And this is fine. I'm not blaming anyone for their preferences, but the markets are completely objective. Every lot or position has a price.

 

I'm not really interested in 'risk of ruin'. I'm not interested in 'ruin' in terms of my trading account. That money is there because it is money that I can afford to lose. If the account is 'ruined' then I won't be.

 

Many people will say that this is pretty much gambling. I'm under no illusion that trading is anything other than a structured form of gambling in which the trader positions themselves in relation to a range of probabilities (of which risk of ruin is just one). How a trader choses to do this is up to them alone. I am quite comfortable risking the money in my trading account against my perceived probability of return on it.

 

Yesterday someone posted a great link to an article about Taleb and Niederhoffer. Either could go bust; the former could only go bust by slowly 'bleeding to death', whereas the latter could only go bust by 'blowing up'. This was where each had chosen to position themselves within a field of probabilities.

 

It doesn't matter what fancy money management algorithm you use (imagine how sophisticated LTCM's risk management must have been, for example), the only way to avoid the risk of ruining your account is to stop trading it, and if you continue trading, then the only way to avoid the risk of ruin to your finances as a whole is to ensure that you only trade with money that you can afford to lose.

 

BlueHorseshoe

 

 

Gambling has more of a "negative" or "Las Vegas" loose/wild connotation whereas business is usually associated with more careful planning and pre-meditated calculations.

 

Dont get caught up on semantics. Regardless of what adjective you use (gambling, chance, risk, business, etc) Bluehorse just about sums it up the reality of risk. Nothing will ever manifest without taking some action. The idea of "risk free" rewards may make for a good marketing campaign, or a demo account, but in real trading, its about determining the best choices to make and then actually making them.

Edited May 4, 2012 by 4EverMaAT
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[BlowFish 10]

I'm not really interested in 'risk of ruin'. I'm not interested in 'ruin' in terms of my trading account. That money is there because it is money that I can afford to lose. If the account is 'ruined' then I won't be.

 

 

That of course is your prerogative. It is just a term (albeit an emotive one) to describe the maths.

 

Are you not the slightest bit interested what the probability of depleting that capital is for any given approach and position size? There is a big difference between affording to wipe out the account and setting out on a path where the probability of doing so is higher than you guess (I use the term 'guess' advisedly). All I am saying is it is naive to not pay attention to this. Incidentally a naive approach can still yield acceptable results. Chances are you will need quite a large account (relative to your bet size) though.

 

I wonder how one can truly accept risk unless one objectively knows what that risk is? The other thing that running the (simple) numbers will give is a much better understanding of not only the the effects of different bet size and starting capital but how (drastically) R:R and % winners impact things.

 

It does not take long to get an intuitive feel for RoR but until you do running numbers is a much cheaper and quicker way than trial and error.

[BlowFish 10]

 

That number was larger when I first began, and will steadily fall as the account grows. If one day I am lucky enough to have several million in the account, then I would be risking less than 1% per trade. These figures are a product of the specific money management algorithm that I have chosen to use.

 

 

That bolded bit is really smart imho. What you are actually doing is reducing your RoR (sorry couldn't resist) as your account grows. This has obvious advantages.

 

One of the reasons experienced and successful traders still blow up is that they do not do this (or even are prone to over trade when on a wildly successful streak) as you play the game longer the probability of those NN tails in a row becomes greater and greater.

 

And anyway would you really want the same risk profile on a multi million dollar account as you would on say a 25 grand one?

[MightyMouse 12]

That bolded bit is really smart imho. What you are actually doing is reducing your RoR (sorry couldn't resist) as your account grows. This has obvious advantages.

 

One of the reasons experienced and successful traders still blow up is that they do not do this (or even are prone to over trade when on a wildly successful streak) as you play the game longer the probability of those NN tails in a row becomes greater and greater.

 

And anyway would you really want the same risk profile on a multi million dollar account as you would on say a 25 grand one?

 

Blowfish,

 

Say you have 2 traders: one with a 25k account and one with a 2000k account, and each account was all each trader had, then why would one want to take bigger risks than the other if in each case if they went broke, it meant being out of the game?

 

I get that it is certainly easier to raise another 25k for most than it is to raise another 2000k. If the guy with 25k takes more risk, his risk of going bust increases with his potential for increased gains. I am posting this because I have heard it before and it has never made sense to me.

 

There are certainly differences between the strategies that each trader should use, but the differences are more a result of the scale than a difference in risk profiles: ie. it is more difficult to get out of a 80 contract trade than it is to get out of a 1 contract trade; additionally, scaling of positions is done much differently.

 

If a trader has to increase his risk profile because his account is too small, then I suggest he not trade yet or trade something else that allows him to properly manage his funds.

 

If we are inherently assuming that the 25k trader can reload if he blows the account, then we are not really talking about a trader with a 25k account. Instead, we are talking about a trader who is only putting up 25k at a time which means he in fact has significantly more than 25k at his disposal. If so, then sure he can trade aggressively. Otherwise, the advise to trade aggressively with a small account equates to suggesting that it is ok to try to get lucky when you have a small account.

 

MM

[BlueHorseshoe 10]

That bolded bit is really smart imho. What you are actually doing is reducing your RoR (sorry couldn't resist) as your account grows. This has obvious advantages.

 

One of the reasons experienced and successful traders still blow up is that they do not do this (or even are prone to over trade when on a wildly successful streak) as you play the game longer the probability of those NN tails in a row becomes greater and greater.

 

And anyway would you really want the same risk profile on a multi million dollar account as you would on say a 25 grand one?

 

Hi BlowFish,

 

Yes, this is my thinking. It wouldn't be everyones but, in terms of my earlier posts, this is where I chose to position myself within a field of probabilities. When I started trading then I was willing to risk losing the entire account if the market was 'unlucky'. If in ten year's time I have several million in the account, then I won't be willing to lose it all. So I will become (systematically, according to an precise rule) more risk averse as my capital grows.

 

As MightyMouse correctly points out, this is not a choice that can be mathematically rationalised - it's an emotive (for want of a better word) decision. The important point for me is that I made this decision early on, built it into my system as a fixed rule, and am prepared to live with the consequences as they develop - in other words, it's not 'emotive' in the sense that I have an emotional response and act upon it with each individual turn of my equity curve.

 

Incidentally, the money management algorithm I use is just an 'off-the-shelf' one (I even cribbed the TS code from a newsletter), and there are plenty of great books on this topic (Ralph Vance for instance).

 

BlueHorseshoe

[BlowFish 10]

MM, Yes its an 'emotional' thing as much as anything, but that's the nature of risk. If one is happy to take the same risks with a highly successful trading business with capitalisation of millions as with a start-up trading company with capitalisation of 10k go for it . The key thing is know exactly what that risk is!!

 

Having says that as time goes by the chances of hitting that ruining streak looms ever closer. Larger sample size and all that. If you can significantly reduce your risk of ruin by reducing your bet size a little it's certainly worth considering. Btw it is not a straight correlation, halving your bet size does not half your RoR.

 

Of course if you started very conservatively (which would likely need a large starting account anyway) then maybe you are happy with maintaining the same RoR.

 

The other thing (assuming you have a reasonably profitable approach) is that due to the massive growth you get by compounding (maintaining the same risk levels) you are going to hit other issues anyway (liquidity for example).

 

I also have a hunch that traders, trading systems, and markets themselves are 'streaky' in nature but that's just a hunch and a whole other story.

[BlowFish 10]

 

As MightyMouse correctly points out, this is not a choice that can be mathematically rationalised - it's an emotive (for want of a better word) decision.

 

The maths can help though for example you might see that trading n% of account equity less reduces the RoR from 1 in 500,000 to 1 in 50 million (completely made up numbers). The decision is based on emotional comfort the numbers just give you something solid to hang your hat on.

[alaneth 10]

I'm long on EURCHF & very aware of my automatic stop loss by SNB @ 1.20.

 

I'm using full leverage of 400:1 on my mini account. As such my risk level % is 80%.

 

But I've got full SNB backing or max 10pips below 1.20. So no problem with that crazily high risk level of 80%.

[BlueHorseshoe 10]

I'm long on EURCHF & very aware of my automatic stop loss by SNB @ 1.20.

 

I'm using full leverage of 400:1 on my mini account. As such my risk level % is 80%.

 

But I've got full SNB backing or max 10pips below 1.20. So no problem with that crazily high risk level of 80%.

 

Call back in a few days and let us know how that's working out for you?

 

BlueHorseshoe

[BlueHorseshoe 10]

I also have a hunch that traders, trading systems, and markets themselves are 'streaky' in nature but that's just a hunch and a whole other story.

 

Hi BlowFish,

 

Could you expand a little on what you meant by the above please?

 

Thanks

 

BlueHorseshoe

[onesmith 10]

Hi BlowFish,

 

Could you expand a little on what you meant by the above please?

 

Thanks

 

BlueHorseshoe

 

 

serial correlation

 

but that can't be right because the message editor says it's not wordy enough

[roztom 10]

I'm not as savvy as you guys but here is what I would do.

 

Based on the percentage of capitalization what % of equity on a per trade basis can you lose per day before you go out of business?

 

If you are starting out how many chances to you want before you go broke?

 

Just do the math...

 

Pick a number, $25K...if you risk 2% per trade = $500.. Lose 3 X in a day = $1,500 now $23,500... I can't do the math but a person would go out of business pretty quick - long before they ever get to figure this game out.

 

I have a daily risk limit.. If I'm off my game or can't get in sync with the market I stop trading for the day. If I trade in a particular direction and I am wrong 3X I am done unless I go the other way or I hit my risk limit then I am done.

 

I use scales to reduce risk... I put risk management before anything else...

 

Profits are easy its losses that will put you out of business...