[Jacob]

I keep reading about different ways to manage risk. For example, one common rule I read about is to risk no more than 2% of your capital and taking a break after losing 10% per month.

Do you guys use a fixed percentage when calculating risk?

[Soultrader]

Originally Posted by Jacob »

I keep reading about different ways to manage risk. For example, one common rule I read about is to risk no more than 2% of your capital and taking a break after losing 10% per month.

Do you guys use a fixed percentage when calculating risk?

It really depends on your account size and risk tolerance. I am comfortable risking 10 points per trade. For a $10k account that is approx 0.5% risk when trading one contract.

I would not risk 2% on a $10k acccount per contract. My rule is to trade one contract per $10,000. So the risk always stays low.

[ES]

2% sounds alright if you are swing trading. I prefer to use a tighet stop when day trading though.

Using a fixed percentage isnt bad at all. Although depending on your setup you should be able to adjust it accordingly. Some trades may not require 2% risk. Hope this helps.

[Lisa]

Jacob, just make sure you don't overtrade and risk too much that can cripple your account. Risking 2% a trade is okay... but what if you lose 10 trades in a row? That is 20% loss of your capital.

Now you will need to make 25% of your capital to break even. Make sure you have reliable setups. Good luck

[Soultrader]

Let's say you are willing to risk 2% of your capital per trade.

First thing you need to know is your exit stop loss point. In this example, let's say you are trading a stock XYZ currently priced at $100 even. Keep this in mind, a 1 point movement in a $100 stock (1%) represents a small percentage compared to a 1 point movement in a $10 stock (10%). Use a wider stop for a high priced stock and a tighter stop for a lower priced stock.

Let's say you are willing to risk $5 on this trade. Thus your stop loss point per trade = $5.

If you have a trading capital of $100,000; 2% risk is equivalent to $2000.

To calculate your maximium position size:

(2% Risk / Stop Loss Point Per Trade ) = Maximum position size

$2000 / $5 = 400 Shares

This is an appropiate position size. You should always know how much money you may lose before looking at the profit side.

[ihashishin]

hi i needed some help/opinions regarding position sizing

i've been going over my trades (been trading for two years):
turns out i started slipping mid oct so its been one month, coicedentally thats also when the index started falling. also since the first of october ive been trying some position size variations - i've been giving my positions sizes ranging from
aggressive (10% < aggressive <= 25%) to
timid (2.5% < timid < 10%)

what i think has happened is that even though my calls are still 60% correct the varying position sizes have amplified my losses (down -5% this month to date (largest loss since feb2008 to date)) they also amplified my profit (my high for the month was +8% which is the highest i have had during a month in the last one year)

dont know if that trade off of risk/reward is worth the swing of 13%, for now ive scaled all my positions below 5% as my confidence seems to have been effected...

your opinions/comments would be extremely helpful concerning the trade off between volatility and performance

thanks

*PS
1. i dont use any leverage,
2. trade based on delivery in the karachi stock exchange.
3. i beat the index both years that i have been trading

[BlowFish]

The key thing is (imho) risk of ruin. TradersCALM - risk of ruin menu is a great little site that describes it well.

[DugDug]

You can read endless amounts of maths and theory regards money management and position sizing - and I would always suggest you do.

Basics - risk a % of equity per trade, be consistent, trade your equity, incorporate a measure of volatility into this (eg ATR)

But I think Ed Sekoyta summed it up best in not just theory and maths, but in a quote something of the sort - "make sure you have enough heat at risk that its worth while"

ie; risk enough that makes the returns worth it, but not enough that you risk ruin, and be comfortable with the risk. There is not much point being a conservative risk taker and risking 2% per trade - you will be too mentally challenged by losses.

Plus - dont change the amounts at your whim - thats when you will get into trouble. Be consistent.