True... I should have been more precise about the meaning of the term "% risk"...
POLL: Typical maximum % risk of account exposed at any one time
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True... I should have been more precise about the meaning of the term "% risk"...
Even if the poll is vaguely representative of reality, the fact that 71% (so far) voted for the last 3 options is a very worrying outcome... a simple Excel simulation on the risk boundaries in the last 3 choices (using a range of sensible hit rate and risk:reward ratio combinations) has negative implications for drawdown magnitude and also leads to a highly magnified probability of blowing up one's account and/or suffering psychologically debilitating drawdowns which have an equivalent effect to an account blow-up...
If there is one thing that I would suggest differentiates a loser from a winner, it is that winning traders focus on their losing trades and losing traders focus on their winning trades... as such, it is my strongly held contention that even a modicum of accuracy in the poll results translates to an explanation (at least in part) for why the vast majority of traders fail to ever reach consistent profitability...
If there is one thing that I would suggest differentiates a loser from a winner, it is that winning traders focus on their losing trades and losing traders focus on their winning trades... as such, it is my strongly held contention that even a modicum of accuracy in the poll results translates to an explanation (at least in part) for why the vast majority of traders fail to ever reach consistent profitability...
Pabst is right. The less you bet, the more risk you take. A lot of traders put as little as $5k for trading 1 ES or NQ contract hope for getting additional source of income ~10k/year (if they trade part-time) or primary income ~20k (full-time trading). In order to make that much they must risk ~5% per trade. Of course this will most likely result in failure.
Consider lotteries or casinos. People bet $5's or $20's and risk all, 100% in one trade
in order to get very high returns. That's the only way worth playing with pocket-change money, because it gives some fun and hope for a nice return. In terms of probabilities it's a sure way to go broke at some point in the future. Poll results indicate that many people here trade with small accounts, IMHO.
Fully agree... its pretty interesting that under 10% risk under 0.5% at any one time (could there be a logical linkage between this result and the result that at least 90% -- according to many sources -- of traders lose?)... Excel simulations using any realistic R:R and hit rate combos show that when you go beyond this risk level, drawdowns start to become fairly large, so the primary reason why people go much beyond this risk level is that their account levels are too small to avoid doing so... having said that, I do have a few stringent scenarios where I may take the occasional crazy risk of 2% on a trade (thereby exposing my accounts to the potential of unwelcome drawdowns)... but usually, I restrict myself to categories 1-5...
It seems that people think of their risk on trades as independent of each other. They also talk about drawdown as a subject that involves several consecutive losing trades. Lastly, it looks like people trade with relatively small postions of total capital and a lot of capital lies idle.
It seems closely related to how they trade to me.
It seems closely related to how they trade to me.
after doing many monte carlo runs ..
my conclusion is that anything more than 2% is gambling..
randomness and time will catch up with you sooner or later..
My tests also suggest that it's important to set a monetary goal
(a large one that you can retire and live happily ever after )
for your trading career and once you attain that...
quit..because as the longer you trade, the probability increase
that you are going to give all your profits back no matter how
much you risk..it's just a matter of luck..
my conclusion is that anything more than 2% is gambling..
randomness and time will catch up with you sooner or later..
My tests also suggest that it's important to set a monetary goal
(a large one that you can retire and live happily ever after )
for your trading career and once you attain that...
quit..because as the longer you trade, the probability increase
that you are going to give all your profits back no matter how
much you risk..it's just a matter of luck..
Fully agreed... my Excel spreadsheet simulations have come up with a similar conclusion...
My Excel spreadsheet tells something completly different...
Risking 2% of capital per trade is not dangerous, if you have a positive expectancy. Of course, if edge is close to neutral, 2% risk per trade will result in blowing out. The risk of high % drawdown depends on several factors:
1) % loss for losing trades,
2) system's edge,
3) position size mgmt strategy.
Assuming that all losing trades lose equal %.
For example:
- Margin is 5k
- Starting capital 50k
- Your position size is always max. what your current capital and margin allows
- You can lose 100/contr. or win 200/contr. with 40% hit rate. ($100 x 10 contracts)/50k capital = 2% risk
- Profit factor is 1.33
Now, if you'll run Monte Carlo simulation, you'll see that risk of losing money after 500 trades is almost zero. However, you can experience up to 60% drawdowns. Play with the numbers for yourself, I attach Excel spreadsheet with default settings like in the above example. I'm not sure whether it will work properly on your PCs, because I use polish version. If you'll have problems, change names of following functions:
1. Column E: ZAOKR.W.DOL -> ROUND DOWN the number
2. Column K: function that returns random numbers between 0 and 1.
3. Column L: JEZELI -> IF
Spreadsheet has only 50 rows b/c max attach. file size limit. But you can extend # of rows.
Risking 2% of capital per trade is not dangerous, if you have a positive expectancy. Of course, if edge is close to neutral, 2% risk per trade will result in blowing out. The risk of high % drawdown depends on several factors:
1) % loss for losing trades,
2) system's edge,
3) position size mgmt strategy.
Assuming that all losing trades lose equal %.
For example:
- Margin is 5k
- Starting capital 50k
- Your position size is always max. what your current capital and margin allows
- You can lose 100/contr. or win 200/contr. with 40% hit rate. ($100 x 10 contracts)/50k capital = 2% risk
- Profit factor is 1.33
Now, if you'll run Monte Carlo simulation, you'll see that risk of losing money after 500 trades is almost zero. However, you can experience up to 60% drawdowns. Play with the numbers for yourself, I attach Excel spreadsheet with default settings like in the above example. I'm not sure whether it will work properly on your PCs, because I use polish version. If you'll have problems, change names of following functions:
1. Column E: ZAOKR.W.DOL -> ROUND DOWN the number
2. Column K: function that returns random numbers between 0 and 1.
3. Column L: JEZELI -> IF
Spreadsheet has only 50 rows b/c max attach. file size limit. But you can extend # of rows.
Excellent contribution to this thread... thank you, DT-waw...