How to improve my risk management for daytrading.

Discussion in 'Risk Management' started by GotherL, Feb 4, 2020.

  1. GotherL

    GotherL

    I realize I've really poor risk management on position sizing. With $1000 I would trade $1000 or up to 2.5x margin. I take a small % loss but it feels like a big one.

    What would be the ideal size to daytrade with around $2000 account next time?

    Does this sound viable?

    -Risk no more than 1/4th.
    -Max 5% Stop Loss
    -Extended hours 1/5th (Due to volatility and lack of stop loss.)

    I will adjust these numbers depending on my account value. For example, with $10,000 I will probably only trade $1500 max on a single trade.
     
    Last edited: Feb 4, 2020
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  2. Sekiyo

    Sekiyo

    Usually...
    Risk no more than 2.5% per bet.
    It’s still a big number and it would be considered as over betting per many system.

    Each system has its unique and optimal betting percentage. But when in doubt it’s better to under bet than to be over leveraged.

    I would risk 1%.

    Just saying ... if 1/4th is 25% downside.
    It takes a 33.3% win just to break even.
     
    Last edited: Feb 5, 2020
  3. GotherL

    GotherL

    Yes, but I am trading low float stocks not something like forex where that 1% actually makes sense. If I put a stop loss at 1% on stocks 9/10 times it will probably just stop me out.
     
    murray t turtle likes this.
  4. Sekiyo

    Sekiyo

    It’s not the stock fault.
    It’s you being under capitalized.

    2000*0.05=10000*0.01
    Go get 10K.

    Risk is a % of your capital (Exposure)
    It’s not % change from the underlying.
     
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  5. Sekiyo

    Sekiyo

    Also.

    Risk has three dimensions:
    Exposure, Probability and magnitude.

    So how do you manage risk ?

    1. By adjusting your exposure to its probability and magnitude (ex: Kelly criterion)
    2. By lowering its probability of occurrence (ex: Filtering)
    3. By limiting its downside (ex: Stop loss)

    Options are different as they are multidimensional.

    The best loss is at break even (+1 ticks).
    The worst loss is at SL as per plan.

    Rule #1 Never lose money.
    But actually rule #1 is Stay in the game (Survival)
     
    Last edited: Feb 5, 2020
  6. No.... you've got it all wrong.

    You determine your position size according to your capital, risk appetite and the volatility of the market.

    Then you fix your stop according to how long you want to hold the position for, and the volatility of the market.

    There are books about this sort of thing :)

    GAT
     
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  7. Metamega

    Metamega

    I base my position size of my stop/risk.

    Stock is at 5$, I decide 4.75 is where I know I’m wrong about my entry.( I’m usually about 1.5 to 2 ATR away)

    So account day is 2000. 1 percent risk of 2000 is 20$. I take 20$/ .25( entry - stop)
    Which gives me a size of 80 shares.

    The benefit I have with this method which is very common, is size is based off my stop which is volatility based mostly. All stock sectors have quite different volatility and taking equal size trades in a bank stock vs a gold miner is a good way to have some wild equity swings.
     
    Sekiyo likes this.
  8. Turveyd

    Turveyd

    Need to trade maybe 5% per stock to keep from being instant SL'd, but need to but trade 1/5th the size to keep your risk in check, but to make your money work need to trade upto 5 such positions in different stocks / sectors, really you need to be 2/5ths short to account for bad days, 3/5ths short in a downward market.

    Becomes hard work, finding 5 stocks and trading them, is the downside.
     
  9. The honest truth is that you should be able to discover and find the answer to these questions based on your actual trading results. Generally - the better your method, the more you can risk.

    If you have a method which goes deep into drawdown and takes home the occasional big winner or two, i.e., a low win rate, but high win/loss size ratio, you'd need to risk less per trade as you need to survive a drawdown first.

    The best for you is to keep learning and trade in simulator mode for a while. :)
     
  10. In Bill O'Neil's book, he recommends... "if you have a portfolio of stocks, don't risk more than 8% loss on any individual position".

    In the same regard... if you're "trading the market"... via ETFs or futures... I suggest you not risk more than 2% of capital on any one play. If you want to use a wider stop, trade smaller.

    Capital Preservation is #1... ALWAYS!
     
    #10     Feb 5, 2020