Concerning risk per trade sizing - Psychology and Money Management | futures io social day trading
futures io futures trading


Concerning risk per trade sizing
Updated: Views / Replies:19,408 / 151
Created: by Big Mike Attachments:10

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 10  
 
Thread Tools Search this Thread
 

Concerning risk per trade sizing

  #21 (permalink)
Elite Member
Bala, PA, USA
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Mirus, IB
Favorite Futures: SPY, Oil, Euro
 
monpere's Avatar
 
Posts: 1,858 since Jul 2010
Thanks: 300 given, 3,276 received


rani View Post
I am discretionary trader. I trade the same strategy for years (with some adjustments). I do take every signal my strategy gives me, just with different risk profile based on probability. I do not think it is a low or high probability, I know it. Sure it is still a probability, I do not know if the trade ends as a winner or looser.

I do not agree with that generalization. You may be right, that predetermined fixed risk might be the safest way. Maybe. However I do not agree that risk should be determined by percentage or fixed amount of trading capital. Let say your trading capital is $5,000, your risk is 1% and you trade ES. Safe? Hell no. What you actually trade in this case is noise and there is high chance you loose your capital. Risk should be determined by other factors than fixed amount of dollars you can afford to loose. We all know how different is having fixed $200 risk on let say CL compare to ZN.

Of course I agree that 10% of predetermined fixed risk is plain stupid. Whatever I wrote about not having fixed amount of risk does not negate other factors. I am well capitalized and my risk on any trade is never higher than 3% (and that I already consider a high risk). I just do not have any percentage or amount fixed and same for any trade on any product I trade based on my strategy.
If you spend thousands of hours in front of screen and have your strategy tested (and you are not switching to new holly grail or miracle indicator every other month) you know there are trades with higher probability and higher RR. Let me give you a simple example - you are PNF trader. You take long trade on double top as well as on triple top. Are these the same probability entries? No - triple top is by definition higher probability trade than double top one. Do you know you'll get a winner? No, of course not.

As I've said before - predetermined fixed risk is better than no risk management at all. If you do not have enough experience or skills (as trading is a skill activity) or you lack psychological strength or discipline, this may be the best approach for you.
However feeling of having safe amount of risk is not any substitute for above or for well capitalized account or trading appropriate product in appropriate timeframe based on your capitalization.


I did not say I believe in trading a certain percentage of your account. I believe that is purely arbitrary, and depends on the size of your account, and how risk averse you are. And I do not believe risk should be dtermined by how much you can afford to lose. As I said, I use the R-Multiple method "Shares = RiskDollarAmount/StopSize. Keeping RiskDollarAmount fixed, when StopSize increases, then Shares decreases, and vice versa." You are adjusting your contract sizing based on the size of your stop to keep your dollar risk constant.

In this equation, although the dollar amount you are risking is fixed, and maybe based on what you are comfortable on losing, that is not the basis of your stop loss. The actual technical basis of your Risk, is StopSize, because it is the only variable in the equation. With this method, you may take one trade with a 10 tick stop, and a 2nd trade with a 50 tick stop, and if you get stopped out on both trades, you will have lost the same amount of money on each of these trades. So, even though you limited your dollar risk to a fixed amount, you did not limit how and where you place your technical stop in the market.

Since you mention the ES, Put the RiskReward indicator on an ES chart, and put lets say $500 in the 'DollarRisk' parameter field, and 0 in the 'FixedPositionSize' field. Now go to the chart, select the stop line and drag it up and down closer and farther from the entry line, and observe how the number of contracts changes to keep your loss to a maximum of $500, as your stop size changes.


Last edited by monpere; February 19th, 2012 at 09:50 AM.
Reply With Quote
The following 2 users say Thank You to monpere for this post:
 
  #22 (permalink)
Elite Member
Philly, Pa
 
Futures Experience: Master
Platform: NinjaTrader
Favorite Futures: ES, ZB
 
tigertrader's Avatar
 
Posts: 5,948 since Jul 2010
Thanks: 6,314 given, 31,870 received


monpere View Post
I did not say I believe in trading a certain percentage of your account. I believe that is purely arbitrary, and depends on the size of your account, and how risk averse you are. And I do not believe risk should be dtermined by how much you can afford to lose. As I said, I use the R-Multiple method "Shares = RiskDollarAmount/StopSize. Keeping RiskDollarAmount fixed, when StopSize increases, then Shares decreases, and vice versa." You are adjusting your contract sizing based on the size of your stop to keep your dollar risk constant.

In this equation, although the dollar amount you are risking is fixed, and maybe based on what you are comfortable on losing, that is not the basis of your stop loss. The actual technical basis of your Risk, is StopSize, because it is the only variable in the equation. With this method, you may take one trade with a 10 tick stop, and a 2nd trade with a 50 tick stop, and if you get stopped out on both trades, you will have lost the same amount of money on each of these trades. So, even though you limited your dollar risk to a fixed amount, you did not limit how and where you place your technical stop in the market.

Since you mention the ES, Put the RiskReward indicator on an ES chart, and put lets say $500 in the 'DollarRisk' parameter field, and 0 in the 'FixedPositionSize' field. Now go to the chart, select the stop line and drag it up and down closer and farther from the entry line, and observe how the number of contracts changes to keep your loss to a maximum of $500, as your stop size changes.



Indeed, every trade carries the same amount of risk from a probability standpoint. I don't have any idea ahead of time, if one trade has a better chance of being a big winner, than another. So they are not sized, based on any expectation of profitability. The majority of the time, the same goes for adding to my winners. Even though I have a better "feel" for the trade once it is working, my add is still based on an algorithm, and not on discretion. However, there are special times when I do lever up, when I can readily see the trade is spot on.

While every trade is treated the same as far as expectancy, not every market is treated the same. You can't treat this years market, and it's attendant volatility, the same way you treated last year's market, and it's attendant volatility, any more than you can treat two different instruments, with two different vols, the same.

So, even though my stops are discretionary, and ultimately based on where-I-don't-want-to-be-in-the-position-anymore, they are still placed within the context of a volatility-based, position sizing algorithm, which is quite simply, 2% of equity risk, based on a 1.5 ATR stop. This allows me to have a realistic expectation of my risk/reward based on the current volatility of the market and the current volatility of the instrument I’m trading.

What’s most important is what you make of the trade once you have it on. It’s not about, how often you right the market , rather than how much you are right the market. Not only are my winners bigger than my losers, but my winners are ultimately sized bigger and held for a considerably longer time.


Last edited by tigertrader; February 19th, 2012 at 11:59 AM.
Reply With Quote
The following 3 users say Thank You to tigertrader for this post:
 
  #23 (permalink)
Elite Member
Quebec
 
Futures Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker/Data: Stage 5 trading/AMP/CQG
Favorite Futures: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 3,698 since Oct 2009
Thanks: 3,041 given, 4,498 received


In the last analysis, we can see judging from the various opinions that it is a matter of common sense as in everything else in life. If you start with a bank of $10000, it does not take lots of analysis to determine an acceptable risk. It would probably be equal to 2% of this capital. Once you have determined an acceptable risk, you look for a method or approach you know will present opportunities in line with that risk size. You would not pass your time to calculate a new risk size after each trade. Most probably you will trade with the same figure +/-. When your bank increases say by another +$3500 or +$5000, you'll not necessarily change the risk size, you may just continue what you were doing or decide to add one more contract. It's just a personal choice and possibibly your "greed threshold" (the amount of money one feels they are entitled to by virtue of their intellectual or physical assets). That said, i realise since i trade the Futures markets, i think less in terms of fixed % but more in terms of what i am comfortable to risk at that point in my trading life while being aware of my financial resources and status.

Reply With Quote
The following 2 users say Thank You to trendisyourfriend for this post:
 
  #24 (permalink)
Elite Member
Quebec
 
Futures Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker/Data: Stage 5 trading/AMP/CQG
Favorite Futures: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 3,698 since Oct 2009
Thanks: 3,041 given, 4,498 received

I agree 100% (pun intended) with that passage:


tigertrader View Post

... trading.

Whatís most important is what you make of the trade once you have it on. Itís not about, how often you right the market , rather than how much you are right the market. Not only are my winners bigger than my losers, but my winners are ultimately sized bigger and held for a considerably longer time.

Once the trade is open, it's minimize your loss and maximize your gain.

Reply With Quote
The following user says Thank You to trendisyourfriend for this post:
 
  #25 (permalink)
Elite Member
Bala, PA, USA
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Mirus, IB
Favorite Futures: SPY, Oil, Euro
 
monpere's Avatar
 
Posts: 1,858 since Jul 2010
Thanks: 300 given, 3,276 received


tigertrader View Post


Indeed, every trade carries the same amount of risk from a probability standpoint. I don't have any idea ahead of time, if one trade has a better chance of being a big winner, than another. So they are not sized, based on any expectation of profitability. The majority of the time, the same goes for adding to my winners. Even though I have a better "feel" for the trade once it is working, my add is still based on an algorithm, and not on discretion. However, there are special times when I do lever up, when I can readily see the trade is spot on.

While every trade is treated the same as far as expectancy, not every market is treated the same. You can't treat this years market, and it's attendant volatility, the same way you treated last year's market, and it's attendant volatility, any more than you can treat two different instruments, with two different vols, the same.

So, even though my stops are discretionary, and ultimately based on where-I-don't-want-to-be-in-the-position-anymore, they are still placed within the context of a volatility-based, position sizing algorithm, which is quite simply, 2% of equity risk, based on a 1.5 ATR stop. This allows me to have a realistic expectation of my risk/reward based on the current volatility of the market and the current volatility of the instrument I’m trading.

What’s most important is what you make of the trade once you have it on. It’s not about, how often you right the market , rather than how much you are right the market. Not only are my winners bigger than my losers, but my winners are ultimately sized bigger and held for a considerably longer time.

tigertrader, You seem to be an experienced trader with many years of market experience. You may have well developed an instinctual feel or method that has brought you outside of the bell curve. But for the majority of traders reading these forums trying to become profitable, adapting the style of sizing trades based on which one they think or feel will have better chance of winning, go further, or run longer, will generally not work in their favor.

Obviously your post was very personal, and you are describing your trading as it relates to your skill level and experience. My view is that R-Multiple share sizing is a safe way of generically controlling risk, and any trader at any skill level can start using that method at market open tomorrow. Would you advise the average trader on this site to size trades the way you do? Do you believe they will control their risk better if they attempt to do what you do based on what you described in your post? Or, are you just saying that it is possible to successfully size that way, but only with the proper market experience, skill and/or instinct?


Last edited by monpere; February 19th, 2012 at 12:54 PM.
Reply With Quote
 
  #26 (permalink)
Elite Member
Philly, Pa
 
Futures Experience: Master
Platform: NinjaTrader
Favorite Futures: ES, ZB
 
tigertrader's Avatar
 
Posts: 5,948 since Jul 2010
Thanks: 6,314 given, 31,870 received


monpere View Post
tigertrader, You seem to be an experienced trader with many years of market experience. You may have well developed an instinctual feel or method that has brought you outside of the bell curve. But for the majority of traders reading these forums trying to become profitable, adapting the style of sizing trades based on which one they think or feel will have better chance of winning, go further, or run longer, will generally not work in their favor.

Obviously your post was very personal, and you are describing your trading as it relates to your skill level and experience. My view is that R-Multiple share sizing is a safe way of generically controlling risk, and any trader at any skill level can start using that method at market open tomorrow. Would you advise the average trader on this site to size trades the way you do? Do you believe they will control their risk better if they attempt to do what you do based on what you described in your post? Or, are you just saying that it is possible to successfully size that way, but only with the proper market experience, skill and/or instinct?

No, I agree with you - my methodology is not for novices, and may indeed be classified as a"don't-try-this-at-home" trading style. However,( IMO) at some point in time, when a trader is at a more intermediate to advanced level, and wants to take his trading to the next level, it is the methodology to take you there.

Reply With Quote
The following user says Thank You to tigertrader for this post:
 
  #27 (permalink)
Elite Member
Portland, OR
 
Futures Experience: None
Platform: tos
Favorite Futures: NQ, SB, 6J, CL, GC
 
Massive l's Avatar
 
Posts: 1,458 since Mar 2011
Thanks: 922 given, 1,822 received


rani View Post
What makes you change the risk from 1% to 5% after you've entered the trade?

If I like what I'm seeing after my initial entry, then I'll add more lots.
By adding more lots, I'm increasing my risk.

Reply With Quote
The following 2 users say Thank You to Massive l for this post:
 
  #28 (permalink)
Elite Member
Philly, Pa
 
Futures Experience: Master
Platform: NinjaTrader
Favorite Futures: ES, ZB
 
tigertrader's Avatar
 
Posts: 5,948 since Jul 2010
Thanks: 6,314 given, 31,870 received

Concerning risk per trade sizing-size-matters.pdf

Reply With Quote
The following 3 users say Thank You to tigertrader for this post:
 
  #29 (permalink)
Elite Member
Bala, PA, USA
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Mirus, IB
Favorite Futures: SPY, Oil, Euro
 
monpere's Avatar
 
Posts: 1,858 since Jul 2010
Thanks: 300 given, 3,276 received


tigertrader View Post

Interesting article. I didn't fully grasp all of it, due to it's rather theoretical nature, but here's the defining paragraph that stood out to me in the entire article:

"Poundstone highlights another important feature of the Kelly system: the returns are more volatile
than other systems. While the Kelly system offers the highest probability of the most wealth after
a long time, the path to the terminal wealth resembles a roller coaster. The higher the percentage
of your bankroll you bet (f from the Kelly formula) the larger your drawdowns."


Last edited by monpere; February 19th, 2012 at 11:29 PM.
Reply With Quote
 
  #30 (permalink)
Elite Member
London, UK
 
Futures Experience: Beginner
Platform: NinjaTrader, home-grown Java
Broker/Data: IB/IQFeed
Favorite Futures: EUR/USD
 
Adamus's Avatar
 
Posts: 1,085 since Dec 2010
Thanks: 470 given, 778 received



tigertrader View Post


The Kelly formula requires the average trade, because the Kelly formula was derived from gambling using fixed outcome p'n'l rather than in trading where the p'n'l is variable. It significantly underestimates the optimal fixed fraction. There are many reasons why you wouldn't want to use the optimal fixed fraction though, so perhaps the Kelly formula is better since it's less aggressive. If you want a good intro to the theory, the first chapter of Ralph Vince's Mathematics of Money Management is good. I can't recommend the whole book. He writes a lot like Al Brooks writes - difficult to read!

You can discover what your enemy fears most by observing the means he uses to frighten you.
Reply With Quote

Reply



futures io > > > Concerning risk per trade sizing

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Weird chatbox re-sizing annoyance? forrestang Tech Support 4 November 2nd, 2011 08:52 PM
'Operation Twist,' 'Duration Risk' Dangers to Bond Trade Quick Summary News and Current Events 0 August 24th, 2011 04:50 PM
Position Sizing by Van Tharp Laserdan Psychology and Money Management 21 July 8th, 2011 11:37 AM
Position sizing codes ptcm EasyLanguage Programming 2 January 2nd, 2011 04:24 PM


All times are GMT -4. The time now is 03:59 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-17 in 0.19 seconds with 20 queries on phoenix via your IP 107.20.115.174