Risk Management Rules

C

CPTrader

I would like for this thread to be a repository of risk management rules and disucssions about the merits/demerits and validity of such rules.

Risk management is essential to trading success, but typically ignored.

Issues to be discussed include:

Margin usage
MER (margin-to-equity ratio) in futures
Leverage restrictions
Correlation
Stops
Position sizing
Diversification
Market Selection

Please list worthy risk managment rules and if they fall into one of the above categories - indicate which one. also include a short paragraph explaining your rationale for the rule and your experience (if any) using this rule.

Let's stay on topic

I hope this will be a thread that will benefit all ETs.

Thanks in advance for your participation.
 
Quote from CPTrader:

Not even one reply....???!!
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Maybe you can start it off if you have knowledge that you want to share ... or use the search function if you have something that you want to learn.

But I think people are tired of giving the same knowledge base to every new nOOb that shows up (not that you are one, btw).

The only people who really do that consistently are vendors, and that's because that is how they make a living. Even then they won't be able to tell you anything about risk management, becasue they usually don't know much about it, they just tell you about their magical entry system that always makes money.
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In terms of risk management, every good-to-great has their system and their rules, but the most important thing to keep in mind is that trading is mostly psychological, not technical.

Stops: Whatever your stops might be, set them and honor them. When they are hit it will cause you a little psychological pain, but just see it as the price of doing business.

Leverage: Do not overleverage, even when you are on a winning streak. Increase your position sizing according to your trading algorithm. Successful trading leads to the light of greed, which is a feeling that you can do no wrong.

Do not pay attention to that. :p

Position sizing: To many rules, too many variables to even begin to talk about this one ... lets just say, the more money you have to work with, the better.

Each situtation is too unique to put rules up on an internet forum and to think they even mean anything.

Good Luck
 
Quote from kut2k2:

The bottom line on Position sizing.

And I think "stops" is something better discussed in Strategy Trading than in this forum. But I'm open to persuasion.
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No, this is the bottom line on Kelly. Kelly is inferior to several other methods for position sizing.
 
Quote from TraderZones:

No, this is the bottom line on Kelly. Kelly is inferior to several other methods for position sizing.
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Name one. Hell, name two while you're at it. Didn't you get the point of this thread was to discuss, not to just dismiss?
 
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