risk management for swing/position trading

M

Mathiewannabe

this is for people who don't day trade but swing/position trade.

What is your risk management system?

The one idea I want to implement in my future plan is to make use of elder's apporach: risk max of only 2% of capital for each trade then set wide stops(15%?), and max 6% of capital at any time; then risking more if trades go in your way. I notice that this can be slow, but it's safe. What do you think about it?

Picking stock would be by technical analysis; I also was thinking of going long and shorting 2 stocks in the same industry to kind of hedge it against each other, but ofc going long would be for shares that i think are bullish, and short for bearish. So ratios of short:long shares are ideally 1:1. Is this a feasible idea? or do you just enter into a lot of positions in small sizes, and set wide stops?

I'm mainly talking about trading nyse,djones,nasdaq stocks :)
 
Quote from Mathiewannabe:

The one idea I want to implement in my future plan is to make use of elder's apporach: risk max of only 2% of capital for each trade then set wide stops(15%?), and max 6% of capital at any time; then risking more if trades go in your way. I notice that this can be slow, but it's safe. What do you think about it?
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None of that stuff is safe with stocks when position trading. It is possible you wake up one morning and see your stop order executed way below the set price. These techniques (2%, etc.) were used by futures floor traders and first mentioned in the book Market Wizards. I position trade stocks and I risk no more than 0.5% on each position and that was already proved to be too high. I am now adding more stocks to the portfolio and I will move that down to 0.2%.
 
thanks for the reply bill;

from your experience of risking 0.2% - 0.5% of the portfolio for position trades; how long do they last? and how wide would you put the stops ?

I think 10% is reasonable, but given 0.2% risk, suppose you have $25,000; then you're risking $50, so if i were to put 10% stop, i would be putting up $500.
Isn't that too much of a small amount? Considering commission fee to be $5, then each time, you're losing 1% of your position.

Do you keep a maximum risk rule, or you just buy whenever you want to buy certain shares?

I want to develop a trading plan that I can look at for maybe an hour just before I go to bed :) I'm going to research more about risk management as only books I've read were onl

My first one turned out to be bad as I was being very paranoid with my positions and kept checking during the day which was quiet stressful :( (again bad risk management).
 
Quote from Mathiewannabe:

I think 10% is reasonable, but given 0.2% risk, suppose you have $25,000; then you're risking $50, so if i were to put 10% stop, i would be putting up $500.
Isn't that too much of a small amount? Considering commission fee to be $5, then each time, you're losing 1% of your position.
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A 10% stop is too wide for me. I use 2% to 5% and I trade stocks with a price > $20. I have about 20 times the account size you mentioned so I can easily buy 600 shares for a $50 stock with a 3% stop and 0.2% risk. I trade a maximum of 10 stocks at a time for a combined portfolio heat of 2%. This is the best startegy I have been able to come up with as far as risk. But you need a bit of money, it is not suitable for small accounts.
 
Quote from intradaybill:

A 10% stop is too wide for me. I use 2% to 5% and I trade stocks with a price > $20. I have about 20 times the account size you mentioned so I can easily buy 600 shares for a $50 stock with a 3% stop and 0.2% risk. I trade a maximum of 10 stocks at a time for a combined portfolio heat of 2%. This is the best startegy I have been able to come up with as far as risk. But you need a bit of money, it is not suitable for small accounts.
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Wasted sittng cash doesnt bother you?
 
hey burbx, i bookmarked that thread now; i think there are a lot of info that I have yet to gone through.

bill, i see what you're saying. i guess it's all relative, and have to find best strat for certain capital size.
 
Quote from ES.Dreamer:

Wasted sittng cash doesnt bother you?
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When the combined risk (account risk percent) is equal to the percent stop the account is fully invested. Think about it. This is one reason to keep stops low. But this analysis is above and beyond the head of many traders. I should not even be talking about it.
 
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