Maximum % %Loss of Equity for "Longer" term trades?

Discussion in 'Risk Management' started by toddk63, Aug 15, 2008.

  1. toddk63


    I have been swing/position trading a "system" using a stop loss of 2xATR's. Risking about 1% of account equity on each trade. This naturally accumulates about 5 or 6 open positions at a time. Average holding period around 2 weeks.

    Recently, I finally invested some quality time developing and back-testing my trading system. The results were unexpected. The optimum stop loss for my system was around 6xATR's. Average holding period about 6 months. This however leads to more than 10 open positions at a time. I wish to have only around 5 or 6 positions at a time, which would mean my % equity risk would have to go up to about 3% per trade.

    Is it reasonable to assume that a short term system risking 1% with 2xATR stop loss is about equal to a longer term system risking 3% with 6xATR stop loss on risk basis?


    Todd K.
  2. pegasys1


    why not lower position size so you can risk say 1.5% total on those 10 positions and 6xatr. Sure you'll make "less" money, but think about this.
    system a. 100% a year dd 50%
    system b. 20% a year dd 10%
    If you use system b then you can just load it up with capital. Less DD is better, just lower positions.

    More money long term, and less stress.
    Also, why not just trade both and move money from the high risk account to the lower risk account after a big win in the high risk.
  3. This means you curve fitted your system.

  4. ronblack


    I don't know what "equal" means here. What is the measure you can apply?

    Obviously, a swing trading system and a longer-term position trading system cannot be "equal" in any sense other than ROI.

    Especially the drawdown will be quite different and the Sharpe ratio.