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# Calculating Risk

Discussion in 'Risk Management' started by Etr8r, Aug 31, 2011.

1. ### Etr8r

I often see calculations involving Risk, but I've never seen a explanation of how Risk itself is calculated.

Can someone explain how risk is calculated for the ESx or NQx futures?

2. ### DontMissTheBus

Depends on what KIND of risk you want to calculate. For current price risk, the trailing 20 days standard deviation should do.

3. ### kut2k2

Standard deviation is a piss-poor measure of risk. Use the Sortino ratio.

4. ### DontMissTheBus

That's a measurement of return-risk using semi-variance as risk proxy.

It all depends on what you are trying to do. Using variance (as oppose to semi-variance) is fairly good for targeting price risk.

Again, sortino ratio (and it's cousins: the sharpe ratio, calmar ratio, etc) are not measures of risk, but performance.

Example of Risk Percent . A possible trade for tues 9-6-11. Symbol DZZ go long at 4.15 and stop loss at 4.00, risk percent 3.6 risk amount per 100 shares or \$15.00. RISK PERCENT- is the percentage difference between the signal price and the suggested stop loss price. Multiply this times your position size to compute the dollar amount risk ( not including commissions). 5% or less is acceptable while greater than 5% risk becomes excessive. Trades with lower RISK PERCENT should be favored over trades with higher Risk Percent. Example of high risk trade for tues 9-6-11 is symbol OVTI go long at 17.70 stop at 16.65 Risk Percent is 5.9% with Risk amount per 100 shares is \$105.00. I hope this helps but this is on my trade software.

6. ### Etr8r

simpletrader - So, Risk = (Entry - Stop) / Entry ... Correct?

7. ### N54_Fan

NO,..

Risk per share = Entry price - Stop Loss price

Risk per trade = % of capital you want to risk. Lets say 1% of capital for example. Assuming a \$100,000 acct that would mean \$1000 per trade.

Now take the risk you wish to have per trade (\$1000 in this example) and divide by the risk per share to get the MAX number of shares you can purchase.

(Risk/trade) / (Risk/share) = # shares/trade. If your stop was \$0.15 away as you described then you have 1000/0.15 = 6666.66 shares maximum you could buy and still only risk \$1000 assuming your loss was hit.

8. ### SnakeEYE

Why even risk anything

9. ### N54_Fan

No risk = NO reward.

10. ### SnakeEYE

why not place trades without risk?

#10     Sep 25, 2011
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