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Concerning risk per trade sizing
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Concerning risk per trade sizing

  #1 (permalink)
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Concerning risk per trade sizing

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This thread is to discuss the topic of which risk model you use, and why.

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Last edited by Big Mike; February 28th, 2012 at 02:33 PM.
 
  #3 (permalink)
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I evaluate risk...


on a trade by trade basis. I do not consider what % of account is appropriate because, for starters I do not enter a trade to lose money. In my mind, as soon as you put a $ standard you define that loss as acceptable...I will not do that. So stop loss is based on recent hi/low or reasonable s/r considering recent vol and vola and usually triggered by a deterioration in one of the entry premises.

Interesting that it seems as though many guys have an idea or opinion about the market and where it might be headed. I try very hard not to do that.

Great topic question Mike. This one should prompt interesting debate.

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For me it's a fixed dollar amount per trade risk. It seems more logical than using a fixed %. The reason is simple, if you start with $10000, and drawn down to $5000, using a fixed % method, it will take you much longer to recover because you started out risking 2% per trade which was $200, but at the drawn down period, your only risking $100 per trade, so even if you have a good winning streak, your capital is recovering at half the rate it would using fixed $ per trade risk. Risking a fixed % per trade will eventually lead to over trading which is about the worst thing you can do for your bottom line.

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I also use fixed dollar amount risk on every trade, through variable share sizing using the Van Tharp R-Multiple method. I risk the same dollar amount on every trade regardless of how big my stop loss is, by varying the contract/share sizing. Shares = RiskDollarAmount/StopSize. Keeping RiskDollarAmount fixed, when StopSize increases, then Shares decreases, and vice versa. That way I can trade a 30 second chart and a weekly chart with the same methodology, and the same dollar risk per trade, if I want.


Last edited by monpere; February 18th, 2012 at 02:15 PM.
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i use the unlimited bankroll theory!

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madLyfe View Post
i use the unlimited bankroll theory!


I just fade madLyfe's trades and take his money.


( I hope you realize this was just in jest)

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These percentage or fixed amount of risk are certainly better than no risk management at all. Nevertheless I do not use them. I have my risk defined by my methodology before I enter any trade. The actual percentage or fixed amount of risk may differ based on probability and RR. I am willing to risk more on higher probability trade with higher RR.
On the other side I always enter any trade with "black swan" kind of stop loss. Never otherwise.

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madLyfe View Post
i use the unlimited bankroll theory!

Nice example of the discrepancy between theory and practice.
In theory you have an unlimited bankroll, in practice the others have.

Vvhg


PS. In order to not hijack this thread: I use a fixed percentage as worst case stop.

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rani View Post
These percentage or fixed amount of risk are certainly better than no risk management at all. Nevertheless I do not use them. I have my risk defined by my methodology before I enter any trade. The actual percentage or fixed amount of risk may differ based on probability and RR. I am willing to risk more on higher probability trade with higher RR.
On the other side I always enter any trade with "black swan" kind of stop loss. Never otherwise.


How do you define the probability of any single trade? And when you risk more, are you not also considering the risk in terms of a fixed $ or % number to some extent?

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