You should never ever risk more than 2% of TLNW

[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.. 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

The problem is that the correct % of bankroll to invest for optimal growth for a system that has a 50% edge and 1:1 risk is 25% of the bankroll. No other % in this scenario will grow your bankroll as quickly as investing 25% of your bankroll on each one at a time individual trade. What your example correctly points out is that if you invest too large of a % of your bankroll based on your edge/risk, even though you have a huge edge you can turn that system from a huge edge to no edge and even a loss.

However, % (Kelly) style investing works best when you have an accurate picture of your edge/risk. If you do, then there is only one correct % of your bankroll based on your edge/risk that will maximize growth. If you do not have an accurate picture of your edge/risk and/or you are just more conservative (as I am), then it is much better to understimate the % then to overestimate the %. If you overestimate, there is a greater chance that you will go bankrupt. If you underestimate, the worse that can happen is your bankroll will not grow at the maximum rate but it will grow.

I personally use a half-Kelly and my calculations are bit trickier because I am mostly a hedge investor. Again, everyone has to find what works for them. % works for me so I use it. I would recommend % investing to anyone that had a quantifiable edge but % investing has to applied correctly to work properly. Even if one has the best tools, if they are not used correctly, they will not get the desired results.

Joe.

 

[Johno]

Quote from Buy1Sell2:

It's just experience and common sense. Once you start exceeding the 2 percent level, you greatly limit the number of trades that you can make before you may have to close up shop. I have no problem with 1 percent by the way. I think we need to look at the fact that most traders lose and get out of the business. The main reason is that they do not control risk. It doesn't have to do with good entry or exit systems. It simply has to do with not having good, prudent risk management. "The trader that loses the least, makes the most money in the long run"--Izzy

You appear to be trading dollars rather than markets. There is a vast array of RR profiles, Potential trade outcomes, speculator asset bases and/or account balances. My average is 4% which at times can go to 15%+ or down to 2% and if everthing is turning totally to shit down to 0%. This is on highly leveraged derivatives. Average RR 4-5 to 1 and at times 10/15 to 1, the market always dictates the return.
Total net worth or account size say nothing about how you should approach speculation, rather how to best ( cost effectively) allocate your overall (account, private and business) assets should be your key criteria.
Many here like to be stroked by calling themselves traders, but they are not traders at all, they are at best retail speculators! Traders are the people usually working for the Investment banks, who take the other side of their attempts to beat the market! If you want to win at this game, then accept what you are and do what is required to learn to "speculate" intelligently.

Regards

Johno

 

[nukethewhales31]

Quote from u21c3f6:

The problem is that the correct % of bankroll to invest for optimal growth for a system that has a 50% edge and 1:1 risk is 25% of the bankroll. No other % in this scenario will grow your bankroll as quickly as investing 25% of your bankroll on each one at a time individual trade. What your example correctly points out is that if you invest too large of a % of your bankroll based on your edge/risk, even though you have a huge edge you can turn that system from a huge edge to no edge and even a loss.

However, % (Kelly) style investing works best when you have an accurate picture of your edge/risk. If you do, then there is only one correct % of your bankroll based on your edge/risk that will maximize growth. If you do not have an accurate picture of your edge/risk and/or you are just more conservative (as I am), then it is much better to understimate the % then to overestimate the %. If you overestimate, there is a greater chance that you will go bankrupt. If you underestimate, the worse that can happen is your bankroll will not grow at the maximum rate but it will grow.

I personally use a half-Kelly and my calculations are bit trickier because I am mostly a hedge investor. Again, everyone has to find what works for them. % works for me so I use it. I would recommend % investing to anyone that had a quantifiable edge but % investing has to applied correctly to work properly. Even if one has the best tools, if they are not used correctly, they will not get the desired results.
Joe.

Yes. % does provide maximum growth potential with those with quantifiable edges when used correctly. It is also a smoother curve. I guess it does depend on the person as well and also on the system. But i guess for me i would perfer to limit maximum growth for a more reliable slow growth system.. and I mean ive been trading about 4 1/2 to 5 years now I dont have nearly the return of someone that trades with % but i dont have nearly the drawdown and ive never ended a month in the red.. And i contribute alot of it to the fact that i use fixed with levels... because at 2:1:50% % breaks even at 2:1:35% you breakeven with fixed. But as the two curves growth through infinite amount of trades % does compound faster. As a trader tho im more concerned about consistency.

 

[intradaybill]

Quote from u21c3f6:

The problem is that the correct % of bankroll to invest for optimal growth for a system that has a 50% edge and 1:1 risk is 25% of the bankroll.

To be precise, it is the correct % of bankroll to risk, not to invest. Quite often and based on preset stoploss exits, the optimum amount to risk cannot be realized due to the limited size of bankroll to cover margin of the required position size.

This article explains %kelly and clarifies some misconceptions.

 

[Buy1Sell2]

What is very telling here is the extremely low number of people who risk less than 2 percent of their TLNW and are using that as their benchmark. I suspect that these scant few are the ones who are the most successful traders.-Izzy

 

[MandelbrotSet]

i love B1S2's posts as a trader, and he runs a very tight thread with the ES Journal, where he walks his talk, and his wins outnumber his losses by such a great frequency and degree across so many markets that the results must be amazing, but I don't believe in one-size-fits-all trading ... period.

***

There most definitely are periods when the statistical odds of placing a winning trade are far greater than 50% (75-100% to be exact) and there are other times when the odds of placing a winning trade are actually less than 50% (50-25%).

If you are only placing trades during the high-prob times, the probability of the market moving substantially in the direction of your original trade are very high, and this increase in probability makes the conversation of percentage risk less meaningful than in a 50/50 or 50/25 environment (although it is definitely still relevant).

I'm doing some interesting studies, in part due to your work, nukethewhales, non of which I actually execute the way you do, but the concepts of which can be "ported" over to other systems of trading.

It's gonna be a wild week ahead, and I'm really looking forward to it.

Good trading

 

[Buy1Sell2]

Less than 30% of the respondents indicated that they risked no more than 2 percent of either their account balance or TLNW. I think it is very revealing that the number is so low. This helps explain why so many traders lose. Furthermore, only 10% are looking at risking less than 2 percent of TLNW. This is tremendously good information and sheds light on why folks fail.

 

[Johno]

Quote from Buy1Sell2:

Less than 30% of the respondents indicated that they risked no more than 2 percent of either their account balance or TLNW. I think it is very revealing that the number is so low. This helps explain why so many traders lose. Furthermore, only 10% are looking at risking less than 2 percent of TLNW. This is tremendously good information and sheds light on why folks fail.

Or then again, maybe not!

Regards

Johno

 

[nukethewhales31]

Quote from Buy1Sell2:

Less than 30% of the respondents indicated that they risked no more than 2 percent of either their account balance or TLNW. I think it is very revealing that the number is so low. This helps explain why so many traders lose. Furthermore, only 10% are looking at risking less than 2 percent of TLNW. This is tremendously good information and sheds light on why folks fail.

i think your right.... i work off of platforms in price to compute my risk per trade lets say you have 2000 to start in the account ill start at .5% per trade but it will be fixed so 2000*.5%= 10$ for the next 150-200 trades if price hits 3000 it will be another platform of 3000*.5% or 15$ for the next 150-200 trades... the reason is to allow the rule of large numbers to come into effect and drop the needed accuracy down almost 15% by not using % so the efficiency in trading actually increases... and as a trader thats something i look for when trading ... the system with the most efficiency and highest profitability without reducing efficiency.

 

[nukethewhales31]

Quote from MandelbrotSet:

i love B1S2's posts as a trader, and he runs a very tight thread with the ES Journal, where he walks his talk, and his wins outnumber his losses by such a great frequency and degree across so many markets that the results must be amazing, but I don't believe in one-size-fits-all trading ... period.

***

There most definitely are periods when the statistical odds of placing a winning trade are far greater than 50% (75-100% to be exact) and there are other times when the odds of placing a winning trade are actually less than 50% (50-25%).

If you are only placing trades during the high-prob times, the probability of the market moving substantially in the direction of your original trade are very high, and this increase in probability makes the conversation of percentage risk less meaningful than in a 50/50 or 50/25 environment (although it is definitely still relevant).

I'm doing some interesting studies, in part due to your work, nukethewhales, non of which I actually execute the way you do, but the concepts of which can be "ported" over to other systems of trading.

It's gonna be a wild week ahead, and I'm really looking forward to it.

Good trading

Im glad someone got something out of my thread... you are right you can be profitable with lackluster MM and highly probable trades.. you can be profitable with Great MM and only slightly good probability of success... but systems are only as strong as their weakest link... and as a trader pure efficiency in the trade is king. Its kinda of why i like seeing b1s2's post about 30% is 2% or no more... and the low rate of traders being successful relationship because its true those who can control risk and make their "edge" more efficient are the ones that last.