How much should one risk per trade?

[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]

	Quote:	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.