if people believed every scientific white paper written by math nerds then we would still be in the stone ages. math is full of errors
Should amount to risk vary with trade frequency?
- Thread starter helpme_please
- Start date
i just risked everything i was going to risk on this trade 1 second ago.. and guess what it was a 1 lot but i risked it all and won. longevity who knows but it sure is not a casino and i will tell you why.. look at a roulette wheel it had boundaries. if roulette was the stock mkt in 1929 the nubers would have been what 400 420 now they would be 27,400 27,500 based off of the dow jones. prices. so it is not random at all and it is unbounded. it can apparently bottom out though so that would be ZERO and that would be all companeis going bankrupt doubtful so the path of least resistance is up.
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what i was talking about is theoretical probability and math which when you are a math genius i am not and you do the numbers realistically then you see that from a standpopint of probability since most go to ruin or lose then betting all of it at once is actually the better choice since in the end the outcome will be the same.thats all
now if actually trading and day trading then you should take an assessment of what your true net worth is not just your trading account and use that as a guide if you are learning. most peopel are learnign or searching and should not even be trading but they are with real money so it is difficult to tell them how much to risk but I am often risking way more of my intraday account than any of the books would tell you
Thanks for sharing those blog posts, they were really helpful.
If you're "trading successfully", you should trade more.
If you're trading poorly... you should not just "trade less". You should STOP TRADING ALTOGETHER and preserve your capital.... until you can "figure it out".
True, but it is still the best way to turn a modest capital into a small fortune.
Or the trader can do the reverse and only add to losing positions, still the fastest and easiest way to blow up any trading account, regardless of its size.
helpme_please,
You ask a great question.
Note: I am currently a non-profitable day trader still working hard to become consistently day trader profitable. Please take what I say below as my trading experience only.
It is typical for traders to not risk more than 1% of their account balance while day trading per trade. That is an acceptable risk percentage. I have read 1-3% being the norm.
risk more when right
Yes.
No, no, no... a thousand times no!
There are several good reasons why you should add to winning positions. Say if you're a trend follower, then it's likely that a stronger trend will now occur (lengthy discussion here). You can also add as your capital increases, but only in proportion to the size of the increase in your capital. For this reason it often makes sense to reduce your size in losing positions.
But just adding to try and make more money is NOT the best way to turn a modest capital into a small fortune.
Suppose you put 1% of your account at risk, and that original bet was 'half kelly optimal' (where 'full kelly optimal': the maximum bet size which gives the highest theoretical growth in account size is 2% of your account. Half kelly is a fairly standard risk target). You get lucky and make 3% of your capital on that position. As you're now playing with 'house money' you decide to triple your bet size: 3% at risk (all of which is 'house money')
However the optimal bet is just 1.03 times the original bet size (since your trading capital has increased by 3%, not by 300%), assuming that there is no reason to change your price forecast. The new Kelly optimal bet is 2*1.03 = 2.06%. Your new bet at 3% is nearly 50% more than the Kelly optimal. In the long run you will end up making significantly less money than if you'd kept your bet size unchanged.
If you continue pyramiding up this way, at some point your bet size will be more than double the kelly optimal. Once you reach this point you are guaranteed to go bust in the long run.
Higher leverage than optimal gives you a better chance of getting a small fortune quickly, but then so do lottery tickets. Using higher leverage than the optimal makes it more likely you will go bust eventually, even if your trading strategy is ultimately profitable. Using the correct leverage means you won't get rich quickly, but makes it much more likely you will get rich eventually.
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