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Isn't 2% per trade massively flawed?

  • #21
  • Mar 30, 2015 2:38pm Mar 30, 2015 2:38pm
Quoting JensG
{quote}Use a broker with guaranteed stops or who forgives you a negative balance and than only keep in the account what you need for trading. Alternatively there are other ways to get personal safety, founding a limited company or so and trading through that. But as I have mentioned in other threads before, that will change a lot for you regarding tax and withdrawals and you will need professional help. I don't know your trading style nor your equity, but especially for short term traders like me leverage is your most powerful tool, I will definitely...
Have considered setting up a limited company and trading from that.. or do you think that's not a great move in regards to tax?

Also would you mind explaining this bit?
Using a leverage of around 150 or even 200 should be a relative safe stop before balance going red.
  • #22
  • Mar 30, 2015 2:45pm Mar 30, 2015 2:45pm
Quoting flinx
Hi all, Just a thought: People all over the web say only risk 2% per trade which although sounds good, surly is massively flawed, for example: I enter long with a 20 pip SL, risking 2% of my account. There is a black swan event/caught in news event causing slippage (which do, and will happen) I get slipped for lets say... 200 pips (nothing compared to EURCHF recently) And now, 20% of my account is gone? Or even worse, in EURCHF case, you are now in massive negative equity. Wouldn't a better approach to designate a 'realistic worst outcome' say of...


Use a leveraged account. --> keep only 20% of your "overall" account balance at the broker.
So if your account size is 100k you only upload 20-30k to the broker. On the account you might take trades with the risk of 5-10% but on the "overall" (100k size) it's still 2%.

Black swan events will happen time to time.
I was sitting here, trading the DAX when the limits disapperad from the DOM. Price started to gap 5-10 points here and there - I knew something is wrong so I got flat.
So imho if you have some common sense you just see it and take a small loss.
It's all psychology...
  • #23
  • Mar 30, 2015 2:46pm Mar 30, 2015 2:46pm
Quoting LamerTrader
{quote} Use a leveraged account. --> keep only 20% of your "overall" account balance at the broker. So if your account size is 100k you only upload 20-30k to the broker. On the account you might take trades with the risk of 5-10% but on the "overall" (100k size) it's still 2%.
But then what happens if you enter -100k negative equity from a slippage on high leverage?
surely you would then need the extra money set aside to set you back to 0?
  • #24
  • Mar 30, 2015 2:48pm Mar 30, 2015 2:48pm
Answering the title of the thread - for me 2% is too much.
Even the best traders have a winrate around 60-70%. Sting of losses of 10s can happen to any one of us time to time.
Trading 2-3% would mean that you lose 20-30% your equity...

I personally vary my exposure from 0,25-1,5%. But I like to keep it under 1%.

But the best advice i can give: Use a risk that you can accept - and makes trading comfortable. Pro traders dont look for the returns, they look out for the risk, and they constantly work to trade comfortably, in the "zone".
It's all psychology...
  • #25
  • Mar 30, 2015 2:57pm Mar 30, 2015 2:57pm
Quoting Unabletrader
{quote} People who talk about risking 2% are just demo or unsucessful traders. You can't risk 2% of your K dedicated to trading, it's just insane.
Rubbish or maybe not if you are a newbie ,, but u have to risk at least 2% with good RRR , if you want to earn some money ... Im risking 2-5% as a part time trader depend on situation .. And do not need to care about data cause of longer term trading
You just cant saying that 2% is insane its stupid sentence ..
Bye
  • #26
  • Mar 30, 2015 3:08pm Mar 30, 2015 3:08pm
Quoting Petr.K
{quote} Rubbish or maybe not if you are a newbie ,, but u have to risk at least 2% with good RRR , if you want to earn some money ... Im risking 2-5% as a part time trader depend on situation .. And do not need to care about data cause of longer term trading You just cant saying that 2% is insane its stupid sentence .. Bye
So what's your plan if you got slipped over 1000 pips and you have to owe several hundreds of thousands?
  • #27
  • Mar 30, 2015 3:14pm Mar 30, 2015 3:14pm
Quoting flinx
{quote} So what's your plan if you got slipped over 1000 pips and you have to owe several hundreds of thousands?
You dont. Such thing might clear your broker account but thats it. You get a margin call.
OR - you pay attention to news maybe...
It's all psychology...
  • #28
  • Mar 30, 2015 3:17pm Mar 30, 2015 3:17pm
Quoting LamerTrader
{quote} You dont. Such thing might clear your broker account but thats it. You get a margin call. OR - you pay attention to news maybe...
But margin calls were not executed to the folks on EURCHF, there are hundreds of people with massive negative equity "you could lose more than your initial deposit" is all over brokers websites, pretty much every page?
  • #29
  • Mar 30, 2015 3:19pm Mar 30, 2015 3:19pm
I think you want to avoid something that can't really be foreseen...
When you sit in a car you don't think every time about what's gonna happen if you are going to crash.
And believe me slippage is not the only thing that can kill you... Execution error, platform error etc... They can kill you off just as these news gaps...
Do I pray to God to run my platform normal every day? No.

PS: Dont trade FX...

PS2: You read books and you know that most of these barriers never worked out in history...
It's all psychology...
  • #30
  • Mar 30, 2015 3:29pm Mar 30, 2015 3:29pm
Quoting LamerTrader
I think you want to avoid something that can't really be foreseen... When you sit in a car you don't think every time about what's gonna happen if you are going to crash.
I understand I might come across as wanting to avoid it all..but all I'm trying to find out simply, is:

How do I minimize (maybe a better word than avoid?) the impacts of getting caught up in massive slippage or black swan event like eurchf?

Everyone, has the potential for it to happen and I'm sure(?) most/all profitable traders have plans for events like this.
They don't simply trade and accept they could lose everything they own all the time...that would be silly, I might as well go to the casino, at least that way I can only lose what I invest.

I'm just wanting to understand what traders do to minimize the impacts, how to avoid, how to survive if you do get caught in a big black swan event.
If anybody has advice, how they approach it, how they minimize it, etc etc I would really like to hear.
  • #31
  • Mar 30, 2015 3:42pm Mar 30, 2015 3:42pm
Quoting flinx
{quote} I understand I might come across as wanting to avoid it all..but all I'm trying to find out simply, is: How do I minimize (maybe a better word than avoid?) the impacts of getting caught up in massive slippage or black swan event like eurchf? Everyone, has the potential for it to happen and I'm sure(?) most/all profitable traders have plans for events like this. They don't simply trade and accept they could lose everything they own all the time...that would be silly, I might as well go to the casino, at least that way I can only lose what...
Use a guaranteed stop.
  • #32
  • Mar 30, 2015 3:50pm Mar 30, 2015 3:50pm
Quoting claudia1
{quote} Use a guaranteed stop.
Hey Claudia, love your post, wish your thread was still around. Serious question is there such thing as a guaranteed stop besides $0.00? Even in the ToS of brokers who claim this it usually says under certain circumstances(liquidity etc) the broker is allowed/forced to not honor the stops.
  • #33
  • Mar 30, 2015 3:50pm Mar 30, 2015 3:50pm
Quoting flinx
Hi all, Just a thought: People all over the web say only risk 2% per trade which although sounds good, surly is massively flawed, for example: I enter long with a 20 pip SL, risking 2% of my account. There is a black swan event/caught in news event causing slippage (which do, and will happen) I get slipped for lets say... 200 pips (nothing compared to EURCHF recently) And now, 20% of my account is gone? Or even worse, in EURCHF case, you are now in massive negative equity. Wouldn't a better approach to designate a 'realistic worst outcome' say of...

The sick twist to your question is that " a black swan event" can happen at the start of any 1m candle. Simply risking anything less or anything more based on a "black swan event" is like living your life inside your house because of the probabilities of something bad happening as you go to work via bus, train, or car.
On the other hand, I personally ignore and am "anti" risking the 2% of your account as those who do so, tend to not follow that rule once they open new trades. We see many "rules" such as the one you described, which all in all are made up and should not be even considered considering the system which you are trading.
5% a day keeps the 9 to 5 away.
  • #34
  • Mar 30, 2015 3:51pm Mar 30, 2015 3:51pm
Quoting Sis.yphus
{quote} Hey Claudia, love your post, wish your thread was still around. Serious question is there such thing as a guaranteed stop besides $0.00? Even in the ToS of brokers who claim this it usually says under certain circumstances(liquidity etc) the broker is allowed/forced to not honor the stops.
That is correct. Just because you have a SL doesn't mean it will be filled. Which of course is what the O.P. mentioned in his very first post.
5% a day keeps the 9 to 5 away.
  • #35
  • Mar 30, 2015 4:16pm Mar 30, 2015 4:16pm
There is such a thing as a "Guaranteed stop." See the IG Index site for example. You pay a premium (an extra pip for example) and you never lose more than your stop loss.

http://www.ig.com/uk/risk-management
every Saint has a past. Every Sinner has a Future
  • #36
  • Mar 30, 2015 4:33pm Mar 30, 2015 4:33pm
Quoting turnip15
There is such a thing as a "Guaranteed stop." See the IG Index site for example. You pay a premium (an extra pip for example) and you never lose more than your stop loss. http://www.ig.com/uk/risk-management
Very interesting...

Thinking in terms of insurance company's, I think Ig knows you will pay more in extra spread for "guaranteed" stop than what you will likely pay in slippage for an extended period of time. If this was not the case I don't think they could not offer this as it would not be sustainable in the long run.
  • #37
  • Mar 30, 2015 6:09pm Mar 30, 2015 6:09pm
The problem with the IG guaranteed stop is that you have to make the decision to activate a Guaranteed Stop at the decision point of trade entry and not during the course of a trade. If you are in a trade for a few months with a trend trade and then a pending announcement is about to be released that you just know is going to upset the applecart, you don't have the luxury of amending a normal stop to a guaranteed stop on the fly. The result therefore is that you need to close the trade prior to anouncement and then re-open the trade with a guaranteed stop prior to the announcement and hence cop an additional spread on top of the premium wide spread for a guaranteed stop.

It's nice in principle and is great for some trade techniques but for my approach it has it's issues. I have had to drop their use and look for other ways of managing risk with adverse price movements. The safest way I know is to significantly reduce the trade risk % on a single trade and therefore even if slippage is large using a traditional stop, the impact is not so significant on the portfolio.
  • #38
  • Mar 30, 2015 6:21pm Mar 30, 2015 6:21pm
Quoting Copernicus
The safest way I know is to significantly reduce the trade risk % on a single trade and therefore even if slippage is large using a traditional stop, the impact is not so significant on the portfolio.
Guaranteed Stops are not really a viable option I don't think, especially as they cost so much.
How do you go about reducing the risk? Similar ways I've outlined in post 1?
  • #39
  • Edited 6:54pm Mar 30, 2015 6:30pm | Edited 6:54pm
Hi flinx

Yep, your post 1 regarding finding an optimal structure is a legitimate way to reduce risk exposure. If you are an Aussie (damn....you are a Brit I see) then this thread goes into an optimal structure fairly comprehensively. The conclusion reached in that thread is that in AUS, provided you are not deliberately evading your risk obligations, then a discretionary trust is probably the best way to go currently with legislation as it gives you some asset protection and good tax benefits.

You can also manage adverse price risk through the trade technique as well if you are prepared to diversify across uncorrelated instruments and then significantly reduce your trade risk % for a single instrument. The collective result of the entire portfolio then gives you your bread and butter and your exposure to risk can be handled effectively. For example I risk between 0.25% and 0.5% trade capital risk on a single instrument but trade across 24 instruments in different asset classes.

This gives you the benefit of not having to stress with pending announcements or hedge or whatever for fear of the 'finger of death' and allows you the luxury of not having to have your ear to the news feed and trade away with gay abandon as the world about you disintegrates. :-)
  • #40
  • Mar 30, 2015 6:37pm Mar 30, 2015 6:37pm
Quoting Copernicus
Hi flinx Yep, your post 1 regarding finding an optimal structure is a legitimate way to reduce risk exposure. If you are an Aussie then this thread goes into an optimal structure fairly comprehensively. The conclusion reached in that thread is that in AUS, provided you are not deliberately evading your risk obligations, then a discretionary trust is probably the best way to go currently with legislation as it gives you some asset protection and good tax benefits. You can also manage...
PS I like many others was a victim of the CHF un-pegging recently and despite slippage with stops in place at 0.5% only managed to cop a 1.0% hit with this significant movement that was just a small blip on performance namely attributed to diversification.
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