Risking 1% of your total equity. Does this refer to the stop?

The instructor is most likely telling you that 1% is the maximum loss you should take on any single trade. Its not bad advice. Many books mention a maximum of 1-2%. I think it also depends on account size. If you have a $100k account, then $1,000 is a lot. I would suggest starting small, just risking maybe $100 or 0.1% per trade. Or on a $10k account that’s $100. The reason is that you can have 100 losses before you lose your all your capital. It’s a steep learning curve that takes a lot of trades, so the longer you can stay in the game, trading and learning, the better. For myself, I start out with a $100 limit when I am beginning to live test a strategy. That includes commissions etc. Then when I get/stay profitable I add to this incrementally. Then my max is usually between 0.25% and 0.5%.

To this 1-2% single trade rule I would then add a 5% weekly rule as a secondary risk management tool. So if you lose more than 5% in a week then stop trading for the rest of the week, using this time to understand what went wrong, what can you do better, and observing markets. Then re-enter fresh the following week. The reason for this is because the learning curve has two components, number of trades and time, so this buys you time to learn and delays losing all your money.

Once you get profitable and comfortable trading then you can get more advanced and risk more capital. Then a good to start in understanding risk management is the Kelly Criterion. This basically tells you how much to risk based on payoff and probability. Keep in mind that Kelly assumes maximizing account growth, and the outcomes can be aggressive. Empirically you need to be cautious in estimating the inputs, particularly the probabilities. The successful experienced traders posting here about risking >2% will be comfortable with their calculations for payoff and probability.
 
comagnum said:
I do not believe in always placing the same size bet every time although I keep my avg risk per trade under 1%, there are times I will go as high as 2.5%. When volatility as at extremes during panics the reward-risk is heavily skewed - the upside is massive in relation to the down side. To allow for wider swings I will use an ETF (SPY/QQQ/IWM/etc) and layer only into already profitable positions - when the profit is >200 basis points I switch to a futures contract to free up capital.

Like Soro's said - you want to leverage on profits not on the principal.
More...
%%
Founder of IBD,Investors Business Daily Newspaper;
risks up to 8%, for example risks $8, to make $24.......Thats per trade-position, but still maybe more than the 1- 2.5% per total. However thats mostly wise cash trading -investing+ he wrote the How To make Money In Stocks;>2 million seller book . And come to find out he is unusually good + hard working+ wise record keeping/study; bought a seat on NYSE with trading profits @ age 30 ,youngest @ the time. He does most likely use leverage @ early stage of uptrending bull market
 
murray t turtle said:
%%
Founder of IBD,Investors Business Daily Newspaper;
risks up to 8%, for example risks $8, to make $24.......Thats per trade-position, but still maybe more than the 1- 2.5% per total. However thats mostly wise cash trading -investing+ he wrote the How To make Money In Stocks;>2 million seller book . And come to find out he is unusually good + hard working+ wise record keeping/study; bought a seat on NYSE with trading profits @ age 30 ,youngest @ the time. He does most likely use leverage @ early stage of uptrending bull market
More...
After I read the book by O'Neil: 24 Essential Lessons For Investment Successes (I think he was founder of IBD), I started implementing his 8% rule. It was a bad deal for me: Bought FB @ $24, got stopped out at $22. Bought AAPL at $540 (before split), got stopped at $500, GOOGL, BABA, all got stopped out. Took me a long time and paid hell of a lot more to get back into those stocks. In fact I am still unable to get my FB positions back!

My take: Don't put a stop on them if you intend to hold them.
 
ironchef said:
After I read the book by O'Neil: 24 Essential Lessons For Investment Successes (I think he was founder of IBD), I started implementing his 8% rule. It was a bad deal for me: Bought FB @ $24, got stopped out at $22. Bought AAPL at $540 (before split), got stopped at $500, GOOGL, BABA, all got stopped out. Took me a long time and paid hell of a lot more to get back into those stocks. In fact I am still unable to get my FB positions back!

My take: Don't put a stop on them if you intend to hold them.
More...
%%
Good, ironchief,with AAPL, GOOGL, FB; titanic sinking loss with GM,LEH + Bear Stearns. And i found out later, he has many, many more selling rules than 8%, he sold some @ 3 % loss,some @ ''railroad track top'' [barchart double week top....]If i remember right he doesnt like entering stops with brokers, unless its the only way one can sell??

His latest book , How To Make Money With Stocks[updated oldie] has a sell rule above the top channel, trendline[ for longs]; but i researched that one myself , which i tend to do. Dont like that one, so many good trenders rise above channel, many times.
 
murray t turtle said:
%%
Good, ironchief,with AAPL, GOOGL, FB; titanic sinking loss with GM,LEH + Bear Stearns. And i found out later, he has many, many more selling rules than 8%, he sold some @ 3 % loss,some @ ''railroad track top'' [barchart double week top....]If i remember right he doesnt like entering stops with brokers, unless its the only way one can sell??

His latest book , How To Make Money With Stocks[updated oldie] has a sell rule above the top channel, trendline[ for longs]; but i researched that one myself , which i tend to do. Dont like that one, so many good trenders rise above channel, many times.
More...
Thank you for the coaching.

Lessons I learned: Never use someone's formula/rules blindly without understanding why those rules were there in the first place.

Regards,
 
shatteredx said:
Risking 1% per trade means that you cap your loss at $1,000 per trade if you have $100k in your account.

Peter Brandt says that if you risk more than 2% per trade, you will blow up eventually.
https://www.peterlbrandt.com/your-mean-risk-per-trade-is-3-2-you-are-crazy/
More...

Not long ago he identified the "perfect head and shoulder" in soybean oil

https://www.investing.com/analysis/soybean-oil's-perfect-pattern-200167188

which turned out to be a disaster. But according to him he was going to average down

"Factor is long and I am interested in increasing leverage if the market can dip back to the 36.11 level (Mar. contract)"

That is the bad practice that can blow up. Not going from 2% to 4%. Hey...passive investors in stock market risked 55% in 2008 yet made it big. Sounds like a scared trader.
 
I know the way Peter B. trades - you are wrong in your assumptions. Peter is very aggressive with trade mgmt - he said was willing to risk 130 basis point (1.3%) on this trade - not the 2-4% you claimed.

The Soybean oil head & shoulder bottom produced 2 whipsaw trades for him resulted in break-even trades for him and one for a gain over 500 basis points. Peter B. is very aggressive with his trade/$ mgmt - he always assumes he is wrong on every trade and refuses to let winners turn into losers. He did very well last year - something like a 45% gain.

This is why Peter B. is considered one of Jack Schwaggers favorite wizards. Even though the SO pattern did not produce what he anticipated he was able to make profit from it anyway when most traders probably lost big on the 3 whipsaw breakouts from the pattern.
 
Last edited:
ironchef said:
Thank you for the coaching.

Lessons I learned: Never use someone's formula/rules blindly without understanding why those rules were there in the first place.

Regards,
More...

The biggest mistake of your life in trading can come from listening to, or following, other people!

Of course one can learn from someone else, but without proof and understanding as you rightly say, then nothing of value will ever be learned.

The funny thing is, a person with a level head and a good understanding of not risking too much per trade, can actually make more money than most of the experts on this, and other sites.

A good indicator of how close you are to cracking it, is how bored you get.

The more boring it gets, the more money you will make!
 
Just taking x risk is not the whole picture based on stops or exposure. The volatility and ease of movement should be considered. There are other considerations to be made when trading to be made first, especially if leverage is being used. Granted the opening post suggests equities.

ES
 
You must log in or register to reply here.
Back
Top