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5% risk per trade?

  • #121
  • Jul 20, 2017 12:09pm Jul 20, 2017 12:09pm
Quoting Madinvestor
I think 5% can be done depending on the trading strategy. 1-2% is usually thrown out there for beginners because they don't know very much about what to expect from their strategy, so it helps to not risk more than that to prevent them from blowing up before learning how to trade and what kind of drawdown to expect from their system.
Yes , newcomer have to trade with always lowest risk , because they don’t know the real market principle and don’t know how much volatile this market . but practical is, they always take huge risk than senior traders for making profit very rapidly . as a result they become loser due to lack of exact risk managing plan.
  • #122
  • Jul 20, 2017 2:39pm Jul 20, 2017 2:39pm
Quoting HedgePiglet
{quote} With respect YOU ARE A MADMAN. The trading system we use delivers about an 83% strike rate. Which means its wrong 17% of the time. You are aware of the probability of flipping heads or tails on a coin at 50% DOES NOT MEAN your probability of hitting tails increases if you flip the coin to heads 5 times in a row. (Also called the Monte Carlo Fallacy) I can find 15 days in my journal easily where I had 10+ losers in a row. In a day. @ 5% thats my account halved. And you believe this is acceptable risk??
I must respectfully disagree, although I do see your point. I never said it was not riskier, I simply said it could be done by a very experienced trader that is very comfortable with his strategy. A trader that decides this risk is worth taking would analyze more than just the strike rate. Historical drawdown for his or her strategy over perhaps hundreds of thousands of trades, may cause the trader to decide that higher risk is worth taking for the higher reward. There are other ways for him or her to reduce such risk. Remember that withdrawing profits from your account is also a risk reduction strategy. The trader may have a sizable reserve in the event of a drawdown that you described above and could easily replenish his account in this even if it is historically rare enough. Also, some traders limit their losses as well. You described 10 losses in a day. You are assuming that this is a day trader and also that he would even attempt that many trades in one day. Someone attempting this would have a hard loss limit to avoid that kind of loss in a short period like that.
  • #123
  • Jul 20, 2017 3:12pm Jul 20, 2017 3:12pm
Quoting HedgePiglet
I can find 15 days in my journal easily where I had 10+ losers in a row. In a day. @ 5% thats my account halved. And you believe this is acceptable risk??
Agreed. 5% risk per trade is way too high for my liking.

It's not just 10 losses in a row that will halve an account, it's any sequence of trades where the losses exceed the wins by 10. For example,
L-L-L-L-W-L-L-L-L-W-L-L-L-L
where there are no more than 4 consecutive losses. At 5% fixed frac, that's (0.95)^12 x (1.05)^2 = 0.595 or 40.5% drawdown, from which it would require a (100x40.5)/(100-40.5) = 68% return on the remaining balance merely to recover to BE. Not a happy situation.

I suspect that those who risk upward of 5% either haven't been trading for long enough to experience the nature of equity fluctuation; or are among the amateurs trying to grow a small account, where loss of the account can be shrugged off and hence risk/drawdown is largely irrelevant.
  • #124
  • Jul 20, 2017 3:22pm Jul 20, 2017 3:22pm
Quoting hanover
{quote} Agreed. 5% risk per trade is way too high for my liking. It's not just 10 losses in a row that will halve an account, it's any sequence of trades where the losses exceed the wins by 10. For example, L-L-L-L-W-L-L-L-L-W-L-L-L-L where there are no more than 4 consecutive losses. At 5% fixed frac, that's (0.95)^12 x (1.05)^2 = 0.595 or 40.5% drawdown, from which it would require a (100x40.5)/(100-40.5) = 68% return on the remaining balance merely to recover to BE. Not a happy situation. I suspect that those who risk upward of 5% either haven't...
Damn.....I am following you around this forum again H. I have gotta get a grip on my crush on you./tic
  • #125
  • Jul 20, 2017 6:21pm Jul 20, 2017 6:21pm
Quoting hanover
{quote} Agreed. 5% risk per trade is way too high for my liking. It's not just 10 losses in a row that will halve an account, it's any sequence of trades where the losses exceed the wins by 10. For example, L-L-L-L-W-L-L-L-L-W-L-L-L-L where there are no more than 4 consecutive losses. At 5% fixed frac, that's (0.95)^12 x (1.05)^2 = 0.595 or 40.5% drawdown, from which it would require a (100x40.5)/(100-40.5) = 68% return on the remaining balance merely to recover to BE. Not a happy situation. I suspect that those who risk upward of 5% either haven't...
Nah, amateurs probably don't have a fixed risk at all! I don't risk that much either anyway, but I was just playing devil's advocate in saying that it is possible to do profitably, although quite risky and I would not recommend it.
  • #126
  • Jul 20, 2017 8:17pm Jul 20, 2017 8:17pm
Quoting hanover
{quote} Agreed. 5% risk per trade is way too high for my liking.
Ed Seykota is said to use 5% per trade...

Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in. - Isaac Asimov
  • #127
  • Jul 21, 2017 12:57am Jul 21, 2017 12:57am
Quoting ForexStream
{quote} Ed Seykota is said to use 5% per trade... Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in. - Isaac Asimov
Probably best to have a fact check on that assumption. Ed might have just been obtuse as he frequently can be.

Attached Image (click to enlarge)
Click to Enlarge Name: Capture.JPG Size: 34 KB


From here: http://www.newtraderu.com/2015/04/08...ng-principles/ or here http://www.newtraderu.com/2015/02/17/40-best-things-ed-seykota-every-said/
  • #128
  • Edited 12:36pm Jul 21, 2017 7:27am | Edited 12:36pm
Quoting ForexStream
Ed Seykota is said to use 5% per trade...
There's an interesting essay by Ed on risk management here.
Quote
Your assumptions are your windows on the world.
Risk/portfolio math is an exact science. It leaves no room for assumptions.
  • #129
  • Jul 28, 2017 8:42pm Jul 28, 2017 8:42pm
The common motivation to risking more per trade is profit/greed.

If you risk more, you have the potential to make more, and also the potential to lose more.

I recall a psychology trading book (I forgot the title) brought up a question 'Can your account withstand 10 losses in a row?' 5% risk would mean 50% drawdown in such a scenario. It is imperative to factor losing streak as a possibility in trading.

Dealing with the downside possibility is most of the time more important than the potential gain possibility.

If one is risking 5%, a 1-2 risk-reward ratio would mean 10% return in a single trade, more than what professional traders typically make in a month. Implying one can just take a single trade a month and get higher return rate than professional traders. However, this is nothing to be proud of. Real professional traders will make more money than the trader because their account size is a lot bigger, and they can withstand losing streak while the trader can't because they use proper position sizing.

The statistical chance of account ruin is correlated to incremental risk.

If one needs to make more money, simply put more money into the account, and use the proper risk amount to trade. Of course, this is an issue for undercapitalized traders who need to make money from trading.
'For the market to work, it needs people who think that they can beat it.'
  • #130
  • Jul 28, 2017 9:24pm Jul 28, 2017 9:24pm
'I think 5% can be done depending on the trading strategy.'

You have the right to believe or trade whatever way you want.



'1-2% is usually thrown out there for beginners because they don't know very much about what to expect from their strategy'

Now that is BS.

Go find me a source where a real CP professional trader risk more than that.
'For the market to work, it needs people who think that they can beat it.'
  • #131
  • Jul 28, 2017 9:51pm Jul 28, 2017 9:51pm
'Ed Seykota is said to use 5% per trade...'

Is said? Where did you get that from?
'For the market to work, it needs people who think that they can beat it.'
  • #132
  • Oct 12, 2017 3:59am Oct 12, 2017 3:59am
For me, 5% risk reward ratio is not possible because I get only 68% profit ratio from my personal trading system! In my live trading account, I use 1% fixed risk reward ratio! As a result, I don’t concern about my SL trades position. By the way, sometimes I use 2% when I am very sure about the entry quality.
  • #133
  • Oct 12, 2017 11:46am Oct 12, 2017 11:46am
I fail to accept as true. Every faction of this market is volatile and uncertain,
so making fixed pips risk ration when trading is just impossible.
  • #134
  • Oct 12, 2017 12:01pm Oct 12, 2017 12:01pm
5% risk and under of it is more appropriate to make sure a secure trading order but when market moves at random it can be higher and you have no way to reduce and minimize the risk percentage.
  • #135
  • Oct 12, 2017 12:13pm Oct 12, 2017 12:13pm
Quoting JamesFaulkn
5% risk and under of it is more appropriate to make sure a secure trading order but when market moves at random it can be higher and you have no way to reduce and minimize the risk percentage.
really?
partial close? partial hedge?
trading isnt have to be all black and white, TP or SL, you have all the freedom to operate between those 2 "lines in the sand" however you wish, dont have to be a sitting duck.
there is always, always another trade!!
  • #136
  • Oct 13, 2017 11:01am Oct 13, 2017 11:01am
Quoting GeorgeBaile
For me, 5% risk reward ratio is not possible because I get only 68% profit ratio from my personal trading system! In my live trading account, I use 1% fixed risk reward ratio! As a result, I don’t concern about my SL trades position. By the way, sometimes I use 2% when I am very sure about the entry quality.
Do you make 68% each month from your trading system, while only risking 1% of your portfolio?
  • #137
  • Oct 13, 2017 12:20pm Oct 13, 2017 12:20pm
The proper way to calculate your lot sizing is this:

Step 1:
-Test your strategy and figure out what the biggest drawdown was for your strategy.

Step 2:
-Decide how much of your account you're willing to risk.
-I advise to not go higher than 25%.
-I also advise not to make that number too high if you have problems with psychology.
-It is true that you will grow your account faster the higher that number is but the higher that number the more difficult it will be to come back from a drawdown as well as the more difficult it becomes psychology wise.
-Some people use 5% others 10% and some even 25%.
-This number is called maximum allowable drawdown.

Step 3:
-Calculate your lot size so your drawdown will stay within your maximum allowable drawdown.
-You can increase your lot size as your account grows or decrease your maximum allowable drawdown to risk less. You will probably want to increase your lot size over time until you make enough and then start reducing your risk as your account is growing.


Tips and tricks:
-Have a good sample size when testing your strategy so you get the biggest drawdown your strategy has had before.
-If you have multiple strategies and pairs you can put it all together and get your biggest drawdown that way. If you do this you may be able to trade at a bigger lot size if you have hedging strategies. For example a strategy that does well in consolidation and one that does well in trending markets may cancel out some of the losers making your maximum drawdown lower. If you don't have hedging strategies you may have to lower your lot sizing because of the bigger drawdown and it might not even be worth trading that second strategy in the first place.
-If you do go over you maximum allowable drawdown it's time to review your trading because you might be doing something wrong or you tested your strategy wrong.
-You can also apply money management strategies on top of this which could make you grow faster or slower depending on your money management strategy so that's something you have to test personally.


I'm sure there is more stuff I can say about this but this post is getting long and I doubt people will appreciate this post since most people are so set on trading 1% or something so I will leave it at this.
If you learned anything or appreciated this let me know.


Thanks for reading.
-AntiVi
  • #138
  • Oct 13, 2017 4:41pm Oct 13, 2017 4:41pm
I am a high-risk trader, so clearly I am sharing my train of thought. I would be considered the highest risk trader because I respect the law of the sl but I always reverse order when sl is hit. The moments in which I do so isn't, "random" as I have a perceived calculation of x winning higher than y amount of % per trade. As long as you keep everything 1:1 then you should always have a net day even with negative pips.Who wouldn't want to enter a trade in which their odds of winning is increased by more than 85% on simply "reversing" your order?
  • #139
  • Oct 13, 2017 9:09pm Oct 13, 2017 9:09pm
I'm guessing everyone here is interested in math; this is worth a look

All facts, like increase 7% of anything 10 times and it will double

So risk, 3.5% at 2 to 1 reward to risk, 10 winning trades and you just doubled your account

Inserted Video
It takes a lot for me to IGNORE you, but you can try.
  • #140
  • Oct 27, 2017 7:58pm Oct 27, 2017 7:58pm
This is an issue with figuring out how to trade...too much hypothesis. The main way you will know the amount you can hold up under losing is to begin losing. Likewise, you need to manage the steady reality of losing, isolate from the cash, beating at the forefront of your thoughts. I've experienced some long losing streaks, however hung in on the grounds that I turned out poorly my misfortune limits. It resembles anything in life, hypothesis is extraordinary, and essential, yet the hypothesis should be tried. The outcomes at that point educate the hypothesis and the hypothesis will change.
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