You should never ever risk more than 2% of TLNW

[Buy1Sell2]

Quote from bidask:

i'm not sure if i understand the point of the poll. the size of the trading account will always be less than the tlnw. so 2% of trading account is always less than 2% of tlnw. correct?

.

Not necessarily. The trader may actually have little, no or negative TLNW. The reason I made the poll the way I did was to see how many look at TLNW and how many look at account balance as their benchmark. TLNW is the correct method in my view.

 

[u21c3f6]

First, generalities are not a good way to determine size IMO. It depends on the specifics. In addition, while my investment/wagering accounts are part of my TLNW, I determine the size of my investment/wager based on the size of that particular account/strategy and not on my TLNW.

I use the concept of Kelly for investment/wagering sizing. Therefore the % changes based on the edge/risk profile of the investment/wager I am making and is almost always greater than 2% of that particular account bankroll.

Joe.

 

[rock34748]

Quote from Buy1Sell2:

I never ever do on any one trade/idea. I recognize that many 401k'ers do, but I posted this on a trading site and thought that it was a given that we were discussing trading.

I trade my IRA! No leverage other than ETF's etc... and can and do buy/sell ES futures. So... how does that fit in? After hours and Mondays are my usual hours as I work another job. I'm a total noob that has missed probably 98% of the run up from ES 666.

Right now, mortgage etc... about 60% of my IRA IS my TLNW, so I am under-capitalized. I risk no more than 2% of the account on a single trade idea. If I am down 3% for a week, then I'm done (other than watching, learning, charting, reading, and siming) for 2 weeks, unless an absolute gimme presents itself (and it doesn't.)

Short answer, I risk more than 2% TLNW, I know it and I'm satisfied with my position.

 

[MandelbrotSet]

Quote from rock34748:

I trade my IRA! No leverage other than ETF's etc... and can and do buy/sell ES futures. So... how does that fit in? After hours and Mondays are my usual hours as I work another job. I'm a total noob that has missed probably 98% of the run up from ES 666.

Right now, mortgage etc... about 60% of my IRA IS my TLNW, so I am under-capitalized. I risk no more than 2% of the account on a single trade idea. If I am down 3% for a week, then I'm done (other than watching, learning, charting, reading, and siming) for 2 weeks, unless an absolute gimme presents itself (and it doesn't.)

Short answer, I risk more than 2% TLNW, I know it and I'm satisfied with my position.

Great post, thanks for your reply.

B1S2 raises some interesting points here, but using a straight calculation like the TLNW isn't the be-all and end-all of how a trade should be considered.

As atticus mentions, correlation does come into play when trading multiple positions, and probability needs to be factored into the equation as well.

Good trading

 

[nukethewhales31]

should never use a % to begin with for lot sizing its bad MM..
i use fixed levels. its like saying you make 50% and lose 50% at 50% of the time.. people think for somereason you break even but look at how it works

100... 150...75 ... 1win then 1Loss 50%
100... 50... 75 .... 1Loss then 1 win 50%
yes u should never risk more than 2% i would say never more than 1% but make sure you the actual loss is fixed and continously fixed... not based against the account balances.

if the actual amounts are fixed as well then if you drop down to another level then you need to stop trading levels i place at 25 if i gain 25% i raise the fixed rate if i loose 25% i stop .. because thats about 200 trades or so somethings wrong with the edge.

 

[u21c3f6]

Quote from nukethewhales31:

should never use a % to begin with for lot sizing its bad MM..

My personal opinion is that one should always use a % and that % should be based on your edge/risk but of course it is not the only way to do things. Again, one must do what works for them.

However, to post that one should never use a % and that it is bad MM just isn't correct if one applies % MM with a system that has an edge. Your example is not a valid representation of long-term % use with an edge.

Joe.

 

[nukethewhales31]

Quote from u21c3f6:

My personal opinion is that one should always use a % and that % should be based on your edge/risk but of course it is not the only way to do things. Again, one must do what works for them.

However, to post that one should never use a % and that it is bad MM just isn't correct if one applies % MM with a system that has an edge. Your example is not a valid representation of long-term % use with an edge.

Joe.

whatever u want to do bud in my eyes it is.. as the example shows i can run number for ever at 50% 50% and 50% and it would only diminish the amount more.

 

[u21c3f6]

Quote from nukethewhales31:

whatever u want to do bud in my eyes it is.. as the example shows i can run number for ever at 50% 50% and 50% and it would only diminish the amount more.

Your example is wrong because it does not include the edge that would allow you to make a 50% investment.

Assuming that your win/lose ratio is 50/50, your edge must be 50% for one to invest 50%. That means that based on $100 investments, when you lose, you would lose $100 but when you win, you would have to win $200 to have a 50% edge (net win of $100/2x$100 at risk). Of course those amounts will fluctuate as your bankroll goes up and down. Now if you do your win one lose one scenario based on a 50% edge you will see a much different picture than the one you painted.

Joe.

 

[nukethewhales31]

Quote from u21c3f6:

Your example is wrong because it does not include the edge that would allow you to make a 50% investment.

Assuming that your win/lose ratio is 50/50, your edge must be 50% for one to invest 50%. That means that based on $100 investments, when you lose, you would lose $100 but when you win, you would have to win $200 to have a 50% edge (net win of $100/2x$100 at risk). Of course those amounts will fluctuate as your bankroll goes up and down. Now if you do your win one lose one scenario based on a 50% edge you will see a much different picture than the one you painted.

Joe.

the example was 1 to 1 and 50% or breakeven not included spread or commiss
you lose with a % base MM were as with fixed you would BE.
sure i could say that 1 to 2 at 50% would make money to... with a fixed back look again at the 1 to 2x at 50% your BE in % because
100 ... 50 ..100 1 loss @50% then win at 100% your BE
100...200...100 1 win @ 100% then loss at 50% your still BE
so yeah its different... your just breaking even with 1 -2 risk reward setup at 50% edge.......

fixed would be making money thats why i suggest fixed as with the same setup you would be profitable and you have to have a BIGGER edge to make a system based on %ages as profitable.. as you create platforms where you would increase the fixed amount with capital increase it would not compound as smoothly but is more risk adverse and stable and allows the system to be made profitable even with a smaller edge

tho i agree that the fixed should be below 1% risk

NUKE

 

[u21c3f6]

Quote from nukethewhales31:

the example was 1 to 1 and 50% or breakeven not included spread or commiss
you lose with a % base MM were as with fixed you would BE.
sure i could say that 1 to 2 at 50% would make money to... with a fixed back look again at the 1 to 2x at 50% your BE in % because
100 ... 50 ..100 1 loss @50% then win at 100% your BE
100...200...100 1 win @ 100% then loss at 50% your still BE
so yeah its different... your just breaking even with 1 -2 risk reward setup at 50% edge.......

fixed would be making money thats why i suggest fixed as with the same setup you would be profitable and you have to have a BIGGER edge to make a system based on %ages as profitable.. tho

Be back later when I have more time to do this.

Joe.