Stop loss % for novice trader?

[Lucias]

I'd like to see someone with anything but a large account make good money risking only 2%. It depends on account size, strategy, and more.

Look below

2% of 10k = $200
2% of 100k = $2,000

If you have 100k or more then the 2% rule is probably reasonable. If you have 10k or less then it probably isn't.

You have to factor in also the PROBABILITY of that loss. If you risk 5% with a 1% probability of loss this is much better then risking 2% with a 50% probability of loss.

If you trade with a tiny account, it may be reasonable to risk even 20% of an account if the probability of that loss is very minuscule.

I'd say the most you want to risk is around 8% per trade which provides for 12 losses in a row. But, it doesn't leave anything to trade with. Perhaps, you want to have 50% dd or less, that's 4% per trade. Even this analysis is rudimentary, it doesn't take into account what probability you have loss. Most working strategies have some small probability of significant loss.

 

[Scataphagos]

Quote from Lucias:

"... You have to factor in also the PROBABILITY of that loss. If you risk 5% with a 1% probability of loss this is much better then risking 2% with a 50% probability of loss.

Nobody can know the "probability of loss" (let alone the magnitude of the potential loss) on a particular trade.

The correct mind-set for a trade is, "I think/believe the market will/should rise/decline from here... and I'm willing to risk ______ (%/points/tics) on my conclusion".

That's it.

Once the trade goes in your favor, then it becomes, (a) how much "room" do I allow for a counter before I stop out, or (b) where do I aggressively fade the move to take profits? Both are guesses.... which should be dictated by chart parameters.

 

[bone]

At the time we enter a trade, we also enter a stop/loss level and a profit target for that position - in essence, three orders get entered to open a trade.

The profit and stop/loss levels are dictated by the volatility and previous price action levels of the traded instrument - so we have a system that dictates meaningful profit and stop/loss levels. IMO, it is less than efficient (and possibly destructive, my 2 cents) to have a set percentage for either a stop or profit target. Having said that, I doubt those levels would ever exceed one-half of one percent for a trade. But again, it is dictated by the characteristics of the instrument being traded and not by an arbitrary value.