My Risk Management Plan

[Predictor 11]

I thought I'd share my risk management plan and let me know what risk management principles everyone else uses here, as well. I am day trading the futures only. I was long during the recent "flash meltup" (for a scalp) and while I was right positioned: those sort of events remind me the importance of a risk management.

 

 

Risk Managment Principles

 

1. Always set a stop WITH each position -- i.e using brackets (not manually unless something goes wrong). The stop could be a huge stop. It could be a small stop. But, I always want to have a stop set to avoid the rare event where I can't get out fast enough. I've spoken a lot about the problems of stops but I still always use them.

 

2. Always check reports for breaking news before the trading day and be flat during those reports unless I have a strong reason not to be.

 

3. Set a max daily loss limit for my discretionary trades. I find this more relevant to me then stop size. I believe keeping risk below 5% per day is prudent but I could push it to 7%. The main thing is that I have a daily loss limit so that I can pull back on those days when I'm trading poorly. Also, this tends to give one a bigger stop which often works better then smaller stops.

 

4. Do not hold positions across the maintenance period. I do trade 24/7 but the maintenance window may be a more risky time to trade.

 

5. Do not hold positions over the weekend.

 

6. Always close the platform when finished. Closing the platform will inform me of any working orders or orders I may have forgot to close.

 

7. Be aware of order types and platform operations. For example, in OEC if the platform is down and a strategy order is sent then the stop/limit isn't set.

 

8. If I'm up on the day and hit my profit target and start to lose then consider taking a break for the "day". A day for me is a session 1/2 day.

 

9. Maintain basic awareness of market factors and sentiment.

 

10. Avoid trading if fatigue or other factors make it such that I'm unlikely to perform competently.

 

I'm interested in hearing others risk management plans.

 

Thanks,

Curtis

http://themarketpredictor.com

Edited July 8, 2012 by Predictor

[MadMarketScientist 11]

For speculations, I only buy calls\puts. This puts a floor to any potential losses and lets me ride out wild swings and sleep at night.

 

MMS

[Predictor 11]

MMS,

 

I've often believed that some types of futures trades would do better taken with trading vertical spreads. I traded these at NADEX. But, the time expiry and higher relative costs (for small positions) were difficult obstacles to overcome.

 

As a directional futures trader, I've found the "standard" options market complex to understand. Even so, I think there could indeed be value in trading an options position when one thinks there could be a bigger move and doesn't want to get stopped out for a loss such as could happen in futures.

 

If I could find a spread that traded like a futures position but with limited risk and had an expiry of about 2-3 days then this would be ideal for me. The NADEX spreads are only good for 1 day which is serious limitation.. as it doesn't give much time for the position to recover. I'd like to find a platform that allowed me to trade options like a futures position -- basically something to similar to what NADEX offers but more liquid and something where I could take out a 2-3 day movement. It needs to move as close as 1:1 with the futures market.

 

Another idea I've had would be to convert a futures loss position into a limited loss spread but I don't have any experience in that.

-Curtis

http://themarketpredictor.com

 

For speculations, I only buy calls\puts. This puts a floor to any potential losses and lets me ride out wild swings and sleep at night.

 

MMS

[BlueHorseshoe 10]

Another idea I've had would be to convert a futures loss position into a limited loss spread but I don't have any experience in that.

-Curtis

http://themarketpredictor.com

 

Hi Curtis,

 

I was intending to initiate a thread on this topic within the next couple of days - hopefully this will draw out info from others on here who might have more experience with pairs/spreads/statarb in futures.

 

BlueHorseshoe

[johnw 10]

Hi Curtis,

 

IMO you are very wise using brackets [OCO]

In fact if you choose to occasionally enter on MOs then you can simply enter a bracket behind the price and when you are ready to enter you can drag the Sell Trigger in front of the price and it will fill instantly.... I never enter naked without a bracket.

 

I think you are also very wise with your concern that you do not leave open positions unattended or naked Stops in play ... I have learn't the hard way to flatten even after I think that I am flat... check and check again.

 

Also I agree about weekends and maintenance ... if you are a Day Trader then reward yourself by being a Day Trader ... work hard for a few busy hours during the day and then flatten your account and do something entirely different.

 

I don't worry about my daily account position whilst trading nor do I set profit targets,

so can't comment on these ones.

 

IMHO Trading is all about winning and forfeiting trades in order to make money through trading size ..

This means we need to achieve a solid base of ratios [ win/loss% and tics won /tics lost ratio ] as a precursor to trading size ...

So we don't want to FU the basics through stupidity and carelessness and make this game any more difficult than it need be.

 

I like your approach to planning ..it is thoughtful.

[henryduncan12 10]

Thanks to share your risk management plan with us. However the following are more helpful for me:

 

Do not hold positions over the weekend.

Be aware of order types and platform operations.