How much to risk per trade?

Discussion in 'Risk Management' started by castor_t, Jun 12, 2013.

  1. castor_t


    I am new to trading and have recently started day trading. I know that trading is risky, but I also believe that one could make a decent amount by learning the art of trading.

    I have a question here to all the experienced.
    Let's say I have $20,000 in my trading account.

    1. How much capital should i invest max. per trade?
    2. At what point (loss) should i stop trading for the day?

    What is the decent amount of profit that I should get consistently per day to start trading for living?

  2. kut2k2


    Never exceed your Kelly fraction.

    Kelly for traders
  3. trilogic



    risk .50 to make a buck so long run if your "method" is 50/50 you should be ahead .
  4. deaddog


    That’s a number that you alone will have to come up with. How much is enough?

    Once you determine that number, see what percent return you need per year to get there.

    Then ask yourself if it’s reasonable to expect that return?
  5. First off, I would recommend doing virtual trading for a while. This will help you get into a daily routine, get used to software, indicators, charts, your research, order types, try out strategies, and many other things. If you are brand new to trading, it would be prudent to at least try virtual trading before trading a real account.

    Next, you used $20,000 as your account balance for an example. You should probably divide that amount into three. Let's just call it $7k for simplicity. When you use a live account, start with your $7k. I'm saying that because most likely, you will lose that $7k. I'm not being a jerk, but if you are new there are A LOT of mistakes you need to make. All those mistakes cost money. Think of it as your tuition. Don't reload that account until it is all gone. You will feel like a turd, but you will have learned so much. Now guess what? You can reload and have a fresh start! And you have another reload just in case. Or maybe you will do great from the start. That means you didn't need that extra money to do it and you'll have $14k extra to help you size up!

    What I'm getting at is don't expect too much at the beginning. Don't expect to make fast cash. Trading is very difficult, it takes a lot of time, and a lot of pain.

    Now to just answer your question. My answer is slightly based on what I just said. Don't expect too much from the start. Your main goal is to preserve your capital and not lose too much. Learn doing it small. Whatever you can do with 100 shares or 1 contract, you can do with 1000 shares or 10 contracts or more. Starting small will limit your losses, but if you get consistent it is easy to size up.

    Many people use a percentage of their account for risk per trade. Somewhere from .5% to 5% of your account. Until you get very comfortable and consistent, I would say stay closer to the lower end. Let's say 1%. If you have a $7k account then you would risk MAXIMUM of $70 on one trade. Of course this depends on your type of trading. If you are a super scalper doing tons of trades a day then you probably would risk way less per trade. Keeping your risk down allows you to ride out the inevitable losing streaks. Lose 10 trades in a row and you will lose less than 10% of your account (every time you lose your account size would drop, so the risk would decrease). If you are out there risking 10% per trade and you have 5 bad trade you've lost 50% of your account. That means your need to make 100% just to get back to even.

    For max loss per day, I would say around three times your max loss per trade, so about $210 for this example. That is 3% of your account. If you hit that loss for a day you shut it down. No more trades. That keeps you from digging too deep of a hole in one day. There is always another day to come back and trade.

    Of course, there are different styles, but these examples are fairly general and are a good place to start.

    Now I'm not a great trader. I'm still looking for that long term consistency, but I can control my risk. If I hit my risk limits I quit. I close out my positions and turn off my trading software. No hesitation. Controling my risk allows me to stick around until I get that consistency I'm striving for. Without controlling your risk you'll never stick around long enough to get it.

    My last thing to say is: I wonder if this is one of those posters that starts a thread by asking a question and lots of people will reply, but we never hear from the original poster again!! We'll see.
    comagnum likes this.
  6. dom993


    Most fail right there. Not that trading could not be learned, but finding a good mentor to learn from is virtually impossible. So you'll have to mostly create your own art of trading out of your own blood, sweat & tears. This is a very long journey that you are embarking on, with 95% risk of failure. Good luck with it.
  7. tiddlywinks


  8. kut2k2

  9. Handle123


    I had to quit day trading in January due failing health, am just too slow, twitching in fingers and can't concentrate. But reviewing my detailed records over past five years, I ave 70 day trades per week trading the ES, over 50 weeks times five years is over 17,500 trades. I ave $37 bucks on each original entry trade on ES. Reason I say original entry is I averaged down on every level for total of 13 levels, so the $37 bucks was from the very first entry. It doesn't sound like very much, 37 dollars while risking 3.50pts approx, but it is what it is, and the ave down made it incredible to trade. It is only cause I know every possible outcome the market could throw at me, that I could average down on every trade which is a HUGE no no when trading. Through very tight money management rules, based on weekly trades, I kept losing trades at 5% or less, 8% at losses of commisions and 85% were of 1-8 ticks of profit, at least 45% at one tick. The weekly lossing trades were seldom the huge 3.50pts, as some were due cause of reversals. There were contract reduction based on goals of 2-4pt and based on time. Trading only occurred during first 40 minutes of day session and last two hours of the day session. Most losing trades in a row were three, and at two losing trades in a row, I increased size by 50%. When I had three losses in a row, losses were numbing, but this is a numbers game.

    This method took me three years to build and staggering amounts of time to backtest over tick data going back ten years. When I consider the profit/risk, doesn't look attractive at all, but this is what day trading is all about. The big money has always been in long term trading of stocks and commodities for me, with a 12/1 return on winning trades, BUT losing percentages goes up on the instrument that gets stopped out, but overall position can achieve profit by correct hedging.

    AS far as the OP asking any of us how much to risk shows they are years from having a Business plan that has been backtested long enough so you don't go bankrupt. 10,000 hours of screen time, eventually becoming a programmer to backtest, you either have a mountain of drive within you or you will be one of the many who fail.
  10. chimera


    OH NO.....asking this?

    risk it least you'll be over and done with fast!
    #10     Jun 13, 2013