POLL: Typical maximum % risk of account exposed at any one time

C

candletrader

What is your typical maximum % risk of your account that you are willing to expose to Mother Market at any one time?

This risk is a total % of your trading account and can be based on a single position or multiple simulataneous positions...
 
If you have a 100K account but you're long 50K worth of a stock, does that mean you have 50% exposure?

Worst case scenario is your stock drops to 0, right?

If this is indeed the case, then aren't traders consistently exposing themselves to very high percentages of risk?
 
Risk is in the eye of the beholder. I am a notorious over-trader. But one statement I would like to make is: the more capital you have, the more you should decrease your percentage risk on a trade or position. If you only have several grand, you'd might as well try to shoot out the lights. Afterall you can always earn at a job, or borrow a few thousand bucks to get back in the game. However as your money increases be mindful that 6 figures is hard to come by. So while I may tell someone with 5k don't hesitate to risk 20% on a play you like, I think on 100k that 3% on a trade is enough rope. It's easier to turn 5k into a 100k then it is 100k into 2 million. It's the same percentage growth but a much different dynamic. As your equity curve increases let your relative position sizing decrease. I only wish that those times when I had made several hundred grand fast, I had pondered this with the same perspective that going broke gives one after the fact.
 
Quote from learninglisted:

If you have a 100K account but you're long 50K worth of a stock, does that mean you have 50% exposure?

Worst case scenario is your stock drops to 0, right?

If this is indeed the case, then aren't traders consistently exposing themselves to very high percentages of risk?
More...

Say you bought 1000 shares at $50 ($50,000) and your stop loss is $1 ($1000) - your exposure would be $1000 of the $100,000 you said you had in your account or 1%.
 
Quote from Pabst:

Risk is in the eye of the beholder. I am a notorious over-trader. But one statement I would like to make is: the more capital you have, the more you should decrease your percentage risk on a trade or position. If you only have several grand, you'd might as well try to shoot out the lights. Afterall you can always earn at a job, or borrow a few thousand bucks to get back in the game. However as your money increases be mindful that 6 figures is hard to come by.
More...
i completely agree.
 
Quote from Tea:



Say you bought 1000 shares at $50 ($50,000) and your stop loss is $1 ($1000) - your exposure would be $1000 of the $100,000 you said you had in your account or 1%.
More...

And what happens when your stock is halted and opened up $20 lower???
 
Quote from J~Commisso:



And what happens when your stock is halted and opened up $20 lower???
More...

Exactly.

Market risk makes every trade potentially an account killer, doesn't it?
 
Just a reminder that the poll doesn't relate to the absolute amount of capital exposed... it simply relates to the value of the proposed stop loss / stop losses expressed as a % of total account equity...

e.g. you may have $500,000 in your account and your position may have a value of $400,000.... if your stop loss is $2500, then the number we are looking at is 2500/500,000 = 0.5%... we are not looking at a risk of 400,000/500,000 = 80%...
 
If the poll results so far are in any way representative (a bias towards excessive risk), it goes a long way to explaining why most traders fail, particularly if no negatively correlated multiple positions (to reduce effective risk) are taken in options 7) and 8) ...
 
The formula is quite simple........10%


Use 10% and you will last longer and survive even during the worst drawdown periods.

Use "Volatility Stop-Loss" (The Cousin of 10% Rule) to stay in winning trades longer.

:) :D
 
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