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