Being a beginner, what's the best suitable ratio for me?
2% stop loss rule?
- Thread starter turkeyneck
- Start date
There is a 2% rule where a trader risks no more than 2% of his/her available capital on any single trade. You can divide the maximum permissible risk by the stop-loss amount to determine the lot size that can be bought. Risking 2% of the total capital is always safe for traders, irrespective of their experience and expertise in the field.
Entirely preference but I personally see no reason to go more than 1% risk. Gives me plenty of room for error and room for variance too.
People will never agree on the stop levels. There are so many factors relating to the trade management.
For a pure day trader, the % of capital rule matters. You sure can set 2% capital aggregation as your true stop. But someone scalping only. The other guy trades MSFT. The 3rd guy trades QQQ or SPY. And yet the 4th guy trades TQQQ or SOXL. If you trade SOXL, you just can't set a very tight stop. Or can't commit the total trade capital.
For swing traders, the stop would have to be much wider. How much wider, no one knows. It also depends on account size and account diversification. If I have a conviction trade like SOXL, and it is only 5% of my total capital, I can let it ride to a 15% or even 25% stop. But I will just give up the trade if I do not see any hope to continue.
Before trader commits any trade, all the above trade parameters would need to be considered. Traders need disciplines. You just can't make a trade without any plan. Or do not follow your plan after the trade.
For a pure day trader, the % of capital rule matters. You sure can set 2% capital aggregation as your true stop. But someone scalping only. The other guy trades MSFT. The 3rd guy trades QQQ or SPY. And yet the 4th guy trades TQQQ or SOXL. If you trade SOXL, you just can't set a very tight stop. Or can't commit the total trade capital.
For swing traders, the stop would have to be much wider. How much wider, no one knows. It also depends on account size and account diversification. If I have a conviction trade like SOXL, and it is only 5% of my total capital, I can let it ride to a 15% or even 25% stop. But I will just give up the trade if I do not see any hope to continue.
Before trader commits any trade, all the above trade parameters would need to be considered. Traders need disciplines. You just can't make a trade without any plan. Or do not follow your plan after the trade.
I've never heard of a conviction trade. (Sounds like something illegal that might earn you a conviction if you get caught)
Why would you have wider stops with a swing trade? The smaller the loss the better. The best trades never look back, they work from the start. Instead of adjusting your stop, adjust your entry.
I keep hearing from professional money managers that you have to let trades work, have to give them some wiggle room. The problem is that not all trades work and the more room you give them the bigger your loss and the longer it takes to get your money back. Not to mention the mental capital you burn just looking at red numbers.
I also don't see why account size and diversification should influence your trade. It should influence your position size but not where you put your stop.
I agree with you 100%that you have to have a plan going in and the discipline to follow it.
Aside from an "oh shit market is dying" stop loss, price action is my stop loss. I have an expectation of how price should behave and if it doesn't behave that way then I'm out.
Dude, so you never heard of any like Goldman Sachs Conviction Buy List? Take a look and learn.
Very disappointed by the ET crowd. Should be a group of expert traders....
Goldman's Sachs' (NYSE: GS) Conviction Buy List is a listing of stocks the investment bank's research team expects to outperform.
Goldman's Sachs' regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. (from goldmansachs.com)
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So you are bullish with NQ to start. Long one (or the micro MNQ) at 14,555. Then it drops to 14,550 in 5 minutes. So you are "wrong". I guess you'll unwind and get out right away with a 5 points loss? Sure it is a $100 loss or a $10 with the MNQ.
I wouldn't wait for it to hit my stop. If it doesn't behave how I expect then I try to get out at a good price.
I don't consider wrong or right. I consider trying to get in on the price action that appears to be happening, that's all. If price action isn't what I expect, I'm out.
It is just a waste of time talking the way each trader puts the stop. Or the money management rules. Everyone trades differently. This is not the trading class that each student has the same trade. Even with that, each student does his or her own thing. There is no right or wrong.