How much to risk per trade?

[Overnight]

Maybe you're the poor soul confused by percentages.

I discussed the % risk model of position sizing.

If the % risked per trade didn't matter then a person risking 100% on a single trade would have the same drawdowns and account blow up chances as somebody risking 0.1% per trade...


...Anybody here risk micro amounts eg 0.2% per trade on position trades as opposed to the often mentioned 1 to 2%?

The percentage of the account matters, and it is wholly dependent on what you trade. It cannot be a catch-all.

If you have $10,000 in your account, and risk .2% of $10K per trade on an single contract on the NQ, you have a stop of $20. That is 4 ticks on one contract.

If you enter the NQ at point A, with a stop of 4 ticks, you will be stopped out every time. This is a 100% losing scenario.

If you have $1,000,000 in your account, and you risk .2% of $1 million per trade on a single contract on the NQ, you have a stop of $2,000, that is 100 ticks on one contract.

If you enter the NQ at point A, with a stop of 100 ticks, you might have a chance to not be stopped out. This may not be a losing scenario.

Truthfully, and realistically, you cannot have stops that tight. You will be stopped out more than you will be reaching your target in most wide-ranging markets. It makes no sense to go for your "micro-targets" based on percentages.

.2% is trying to trade in the noise. 1-2% is trying to trade outside of it. You just need to find your comfort zone.

If YOUR comfort zone is .2%, then why don't YOU try it, and get back to us with the results? Why is this a mental exercise? Go on and DO IT!

 

[digitalnomad]

300%

 

[Newc2]

The percentage of the account matters, and it is wholly dependent on what you trade. It cannot be a catch-all.

If you have $10,000 in your account, and risk .2% of $10K per trade on an single contract on the NQ, you have a stop of $20. That is 4 ticks on one contract.

If you enter the NQ at point A, with a stop of 4 ticks, you will be stopped out every time. This is a 100% losing scenario.

If you have $1,000,000 in your account, and you risk .2% of $1 million per trade on a single contract on the NQ, you have a stop of $2,000, that is 100 ticks on one contract.

If you enter the NQ at point A, with a stop of 100 ticks, you might have a chance to not be stopped out. This may not be a losing scenario.

Truthfully, and realistically, you cannot have stops that tight. You will be stopped out more than you will be reaching your target in most wide-ranging markets. It makes no sense to go for your "micro-targets" based on percentages.

.2% is trying to trade in the noise. 1-2% is trying to trade outside of it. You just need to find your comfort zone.

If YOUR comfort zone is .2%, then why don't YOU try it, and get back to us with the results? Why is this a mental exercise? Go on and DO IT!

Look. I appreciate you taking the time to reply. I really do.

BUT


You appear to be saying that the total equity in an account determines the stop loss position!

Stop loss and amount risked per trade only have a relationship to calculate position size.
The dollar amount is irrelevant!

I could have a $10k account and put my stop loss as out of the noise as somebody with a $100,000,000,000 account! Why are you forcing tight stops on me?

 

[Handle123]

I usually have positive expectancy on long term stocks and commodities losses, I over hedge, I lose much more than winning trades in percentages, and make little less on profitable trades cause of the loss on options/smaller losses using futures. But here is the thing, my drawdowns are much lower than any time in my life, so it S&P Index has 20% drawdown, I don't. Plus I hedge open profits when charts have patterns of topping/bottoming and wait for retracements to put on more.

As far as how much to risk on the underlying for stops, that comes from MAE.
https://www.tradingheroes.com/mfe-and-mae-deconstructed-and-how-they-can-help-your-trading/

 

[Newc2]

I usually have positive expectancy on long term stocks and commodities losses, I over hedge, I lose much more than winning trades in percentages, and make little less on profitable trades cause of the loss on options/smaller losses using futures. But here is the thing, my drawdowns are much lower than any time in my life, so it S&P Index has 20% drawdown, I don't. Plus I hedge open profits when charts have patterns of topping/bottoming and wait for retracements to put on more.

As far as how much to risk on the underlying for stops, that comes from MAE.
https://www.tradingheroes.com/mfe-and-mae-deconstructed-and-how-they-can-help-your-trading/

Thanks. I'll look into MAE a little more. I've been adding positions as a trend develops but don't have enough data to get meaningful information on if I had reduced my position sizes further.

I've a hunch that micro positions scaled in and across multiple stocks would skew reward to risk further as well as reducing account volatility. I wish I was good at backtesting

 

[Handle123]

Thanks. I'll look into MAE a little more. I've been adding positions as a trend develops but don't have enough data to get meaningful information on if I had reduced my position sizes further.

I've a hunch that micro positions scaled in and across multiple stocks would skew reward to risk further as well as reducing account volatility. I wish I was good at backtesting

I was good with stocks when I first started but used more fundamentals in late 70s when not as much lying back then with the numbers. Not until six years of losing in commodities I gave in and learned to program, I feel that was turning point for me but also by then I was experienced at charting after 12 years. We live in very much automation age, so often it is you against...better to take some courses and start learning to program.

 

[HanSolo]

Position sizing and risk go hand in hand. You decide what you want to purchase then calculate where you want to put your stop loss then you need to calculate how much you can buy based on the maximum you are prepared to lose from your entire portfolio. This is a big subject. I such you read one of Van Tharpes' books on risk management. It is not something that can be taught in a forum post.

 

[Overnight]

...
You appear to be saying that the total equity in an account determines the stop loss position!

Stop loss and amount risked per trade only have a relationship to calculate position size.
The dollar amount is irrelevant!

I could have a $10k account and put my stop loss as out of the noise as somebody with a $100,000,000,000 account! Why are you forcing tight stops on me?

You're the one who forced the tight stops on yourself! You mentioned .2% of the account total!

"...Anybody here risk micro amounts eg 0.2% per trade on position trades as opposed to the often mentioned 1 to 2%?"

I assumed you meant .2% per trade based on the account size? If not, what is that percentage based upon? If I am wrong on this, then I am an ass, and I apologize.

Because I cannot figure what other figure you would be basing your risk percentage upon.

 

[Newc2]

You're the one who forced the tight stops on yourself! You mentioned .2% of the account total!

"...Anybody here risk micro amounts eg 0.2% per trade on position trades as opposed to the often mentioned 1 to 2%?"

I assumed you meant .2% per trade based on the account size? If not, what is that percentage based upon? If I am wrong on this, then I am an ass, and I apologize.

Because I cannot figure what other figure you would be basing your risk percentage upon.

I still don't think you understand the other side of the equation.

Yes I'm talking about risking 0.2% of total equity.

But you are claiming that means a tight stop. It does not!

Here are 2 examples of the same 0.2% risk showing a tight stop AND a wide stop:

A) Tight stop
Account size : $1m
Risk per trade 0.2%
Entry price: $100
Stop loss: $99.80
Total number of units purchased: 10000

B) Wide stop
Account size : $1m
Risk per trade 0.2%
Entry price: $100
Stop loss: $80
Total number of units purchased: 100

Can you see that the amount risked does not determine the stop loss position?
You can put a stop loss at zero if you want and still be risking 0.2% of total account (but you wouldn't have many units in that case)

As another poster mentioned, it's best to read Van Tharpe.


So back to my original point, has anybody moved just one variable i.e Ultra low % risk (with many more positions) for their portfolios, and has this increased smoothness of their equity curves? In theory it appears yes. But in practice?

 

[Overnight]

I still don't think you understand the other side of the equation.

Can you see that the amount risked does not determine the stop loss position?
You can put a stop loss at zero if you want and still be risking 0.2% of total account (but you wouldn't have many units in that case)
...

No sorry, I cannot see it. I see futures. God bless y'all who can make sense of fixed stop-loss targets based on position size.