Profitable traders how much do you risk per postion?

[ElectricSavant]

The question is, which do you add the most weight to?

Quote from cnms2:

2% is to 2%

When you reduce your risk, you reduce your potential profit too.

 

[cnms2]

It depends how many 2% risk positions you have opened simultaneously.

3 times 2% = 6% is ok
10 times 2% = 20% is probably not ok; it depends on your system
30 times 2% = 60% is definitely financial suicide.

Quote from Daal:
Why?
Would risk 2% really put you at risk of ruin?My guess is not, so why not risk a little more, it might be more uncomfortable yet on the end of the year you will bank more cash. If you trade OPM, then thats a argument. My guess is that you hold a portfolio with 1.5% max risk on each position and your total risk is higher

 

[cnms2]

I use 1% per position with 6% total risk per account. It fits my risk comfort level and trading patterns.

If you want to optimize the risk vs. profit, you can use a modified Kelly formula, i.e. 1/5 or 1/6 Kelly, to determine your maximum risk per account. Then divide it by the number of positions you have opened simultaneously.

Quote from ElectricSavant:

The question is, which do you add the most weight to?

 

[ElectricSavant]

I actually understand you, now.


If you want to optimize the risk vs. profit

 

[acrary]

Quote from Daal:

Why?
Would risk 2% really put you at risk of ruin?My guess is not, so why not risk a little more, it might be more unconfortable yet on the end of the year you will bank more cash. If you trade OPM, then thats a argument. My guess is that you hold a portifolio with 1.5% max risk on each position and your total risk is higher

I'm not concerned with risk of ruin. I hate deep drawdowns. My testing has shown me the single biggest factor in the depth of a drawdown is the amount risked per-trade. At 1.5% at some time a account will experience a 30%+ drawdown. For my trading, 10% is as much of a drawdown as I'm willing to accept.

 

[Daal]

Quote from acrary:

I'm not concerned with risk of ruin. I hate deep drawdowns. My testing has shown me the single biggest factor in the depth of a drawdown is the amount risked per-trade. At 1.5% at some time a account will experience a 30%+ drawdown. For my trading, 10% is as much of a drawdown as I'm willing to accept.

Doesnt bother you the fact that you could make more if you had risked a little bit more. As ralph vince says "if you are not trading for optimal
profits, then you belong on a psychiatrist’s couch rather than in the
markets”. Of course his optimal F is suicide but he still makes a good point

 

[acrary]

Quote from Daal:

Doesnt bother you the fact that you could make more if you had risked a little bit more. As ralph vince says "if you are not trading for optimal
profits, then you belong on a psychiatrist’s couch rather than in the
markets”. Of course his optimal F is suicide but he still makes a good point

Trading is not about maximizing profit but rather maximizing the reward (profit) to risk (max. drawdown) ratio. In optimal F the maximum reward:risk ratio is achieved at the optimal F. By using reverse notional sizing anyone can achieve the same reward:risk ratio independent of the max. drawdown. There is nothing to be gained by increasing size per-trade unless you just prefer to have larger drawdowns.

 

[Thunderdog]

Quote from Daal:

Doesnt bother you the fact that you could make more if you had risked a little bit more. As ralph vince says "if you are not trading for optimal
profits, then you belong on a psychiatrist’s couch rather than in the
markets”. Of course his optimal F is suicide but he still makes a good point

Realistically, "optimal" is best viewed after the fact. Because the future is far more uncertain than a historic probability distribution, you need a wide margin for error if you wish to survive the long term. Ralph Vince seems to live in an imaginary, optimal world. If you don't agree with his Optimal F, then why would you agree with his platitudes? Anyone can be a hero in his own book, but how is his actual trading going? That's not a rhetorical question, I'd really like to know.

Personally, I'm not very exciting. < 1% on intraday ES trades. One day, I just may go crazy and do a full 1%.

P.S. I share acracy's sentiment regarding drawdowns. I have had major drawdowns in my earlier trading, and I had difficulty coping. For me, there is value in a smooth equity curve.

 

[Daal]

Quote from acrary:
There is nothing to be gained by increasing size per-trade unless you just prefer to have larger drawdowns.

Come again?

 

[dougcs]

Quote from m22au:

You probably need to distinguish between anticipated risk (i.e. the % amount of the trader's equity that he is willing to lose before closing the position) versus the potential risk (i.e. if the position gaps past the pre-determined stop loss point).

Based on some posts seen on this board previously, although some traders set out to risk less than 5% on individual trades, the potential loss they stand to make is sometimes more than 100% of their account.

Agree with you. Based on reading in other BBs, it seems some traders ignore "black swans" type risk.

Not just the occasional market event, but events in placing trades such as loss of internet connections, somebody hitting a telephone pole, failure of their computer with a big position and no backup, exchange problems and the like.

DS