What risk % do position traders use?
- Thread starter AshanD
- Start date
When you guys hit a losing streak, it's gonna leave a mark.
Since a stock can gap down 50%, I wonder how you determine what your risk is?
Another thing to keep in mind is that a stock portfolio tends to be highly correlated, meaning when one goes down they all go down.
Another thing to keep in mind is that a stock portfolio tends to be highly correlated, meaning when one goes down they all go down.
I use 2 %. Risk is unknowable. I can target a risk level, I can manage the risk only to a limited extent. If the session begins with a big gap then my loss is greater than my risk budget.
My tolerance for risk might be different from the risk tolerance of other traders.
I am a price follower and I hold my position sometimes for years.
My tolerance for risk might be different from the risk tolerance of other traders.
I am a price follower and I hold my position sometimes for years.
It depends on my conviction. On a typical long-term trade I will risk 1% on my initial entry, that will rise to 2-3% if the trade works out well and the market action confirms my view. I am shooting for at least 3 times my risk, often 5 times. So I expect to make 5-15% return on my total capital on a typical position trade if it works out. 3 or 4 of those per year is enough to make a nice return.
On very high conviction & high probability trades I will risk up to 5%, but this is extremely rare. Maybe once every year or two.
I typically only make about half a dozen serious position trades per year. If they all lose then I'd be down 5-10%, which I find acceptable.
If you are regularly risking 5%+, you need to run some Monte Carlo simulations and plug in your risk/reward and % win rate estimates. Unless you have a huge edge and impressive win rate, you are likely to be running the risk of a much bigger drawdown and possible blowup than you expect.
On very high conviction & high probability trades I will risk up to 5%, but this is extremely rare. Maybe once every year or two.
I typically only make about half a dozen serious position trades per year. If they all lose then I'd be down 5-10%, which I find acceptable.
If you are regularly risking 5%+, you need to run some Monte Carlo simulations and plug in your risk/reward and % win rate estimates. Unless you have a huge edge and impressive win rate, you are likely to be running the risk of a much bigger drawdown and possible blowup than you expect.
How did you guys ever get you capital up when you are only exposing it to 1 to 2 percent risk.
Example
100k in capital = risk of no greater than $2k. Does this mean that you are only buying $2000 worth of equities or is it calculated on your stop equaling a $2000 loss.
What an I missing?
Example
100k in capital = risk of no greater than $2k. Does this mean that you are only buying $2000 worth of equities or is it calculated on your stop equaling a $2000 loss.
What an I missing?
It means you calculate your stop loss + slippage as 2% of equity.
Position trading (vs swing or day trading) is for those with equity or those who still have a job and are building up equity. Likelihood is that when you take portfolio heat into account you can take 6-8 positions max at a time (less if what you trade is highly correlated (don't take 8 long stock positions and think its uncorrelated)).
The great thing about day trading is taking a sub 1% risk but taking it 10 times per day.
Position trading (vs swing or day trading) is for those with equity or those who still have a job and are building up equity. Likelihood is that when you take portfolio heat into account you can take 6-8 positions max at a time (less if what you trade is highly correlated (don't take 8 long stock positions and think its uncorrelated)).
The great thing about day trading is taking a sub 1% risk but taking it 10 times per day.
Quote from JimBob56:
How did you guys ever get you capital up when you are only exposing it to 1 to 2 percent risk.
Example
100k in capital = risk of no greater than $2k. Does this mean that you are only buying $2000 worth of equities or is it calculated on your stop equaling a $2000 loss.
What an I missing?
In my case it was having a big edge and a high frequency of trades i.e. mostly daytrading in inefficient markets.
Other people have done it by waiting for extremely high reward, high probability trades, then punting on large size and pyramiding the profits.
Another approach is to diversify. If you have 20 positions, all coin flips with a small edge and medium volatility, the portfolio as a whole may have a good edge with small volatility and a very high win rate. A bit like a casino running 20 roulette tables instead of one.
Quote from JimBob56:
How did you guys ever get you capital up when you are only exposing it to 1 to 2 percent risk.
Example
100k in capital = risk of no greater than $2k. Does this mean that you are only buying $2000 worth of equities or is it calculated on your stop equaling a $2000 loss.
What an I missing?
say you're buying xyz @ 20 and your stop is at 19 - you're risking $1 per share ... if you risk 2% of equity per trade ($2K of $100K) - then you can purchase 2K shares... 2,000 shares * $1 risked per share = $2,000.
2,000 shares * $20 stock price = $40K of capital invested.