I heard from some professional traders that said don't risk more than 1% or 2% of your total portfolios on each trade in order to manage risk and let the trade work itself out. But let's say for argument sake, you have $100,000. That mean you risk $1000 - $2000 per trade. I know you can't lose that much if the trade goes against you, but how much can you really make by end of the year by doing this? Can you really make much money by end of the year if you only risking 1% - 2% of your trade? But if you are a hedge fund manager that has millions or billions to trade, that is a different story, but I'm not a hedge fund manager nor have millions dollar trading account. For you guys, how much are you risking in term of percent for each of your trade?
I usually risk 2% per trade. My positions are long-term trend-following and usually run for 1-4 weeks I regularly have 5-20 trades open simultaneously. 20 trades might seem a high number but several of these will be pyramid trades on the same forex pair or stock index so my total instruments with positions would regularly be 6 or 7. Even leaving aside the compounding effect of overlaid pyramid trades, $100k should produce a comfortable income with a decent strategy.
vincentnyc, they mean risk, not invest. so if they buy 50 k worth of stock on a 100k account, they have a stop at 1k loss. Of course, 50k in stock cant always be stopped at 1k. Thus we have many ex traders living on the Bowery.
Well, here at ET the average account makes 30-40% a year so yes. If you want to live on 30k you can do it. I trade with much more than that , but my cat has an account at Muriel Seibert and does what you say.
vincentnyc, I like to think in terms of cash $ rather then percent %. I trade Crude Oil and S&P Emini and I normally risk $150-$300 per trade, per contract. I choose my stop loss wisely above/below recent price action.
simple, you must get stopped out a lot, mostly just before it reverses. lots of folk like that around
Percent of your total portfolio that you risk on each trade? Most of my trades I risk 40-80 basis points (.4-.8%). Every once in a while I will take a 'fat pitch' up to 2% when the reward-to-risk is at extremes - like cable at 30 year lows or crude oil under $27 with a bottoming pattern to take a shot at. Take care of the down side & the upside takes care of itself.
I risk way more than 20% of my account per trade. -- Most people would consider that crazy or laughable or insane. My average gains are much more larger than my average losses...and that's all that pretty much matters in the end. But on the flip side of that coin , ... I kind of like to think, that most people don't have much trading skill either. So if you rely on randomness or don't really know what you're doing or just simply hoping and seeing...then risking very little is the smarter and much more wiser option for you. You can't make a killing in the shock market by releasing bricks from a plane...you need a laser-guided smart nuclear bomb, Along with all the necessary gathering of intel and pre-prep work and data and assumptions, Like alot of things in life...if you know what you're doing and have experience and wisdom... it can look like a breeze to the outsider, But to them, through their hands...it's the craziest, hardest, most mysterious thing ever. 2018 ET.
When I was independent/retail, the most I ever risked (right from starting off my first real, funded account with only $3,000, after loads of demo practice) was 1%, and that was very rare - only for my very highest-expectancy trades. Now I trade OPM and risk only a fraction of that (all my trades can be looked at later by a senior risk manager who wouldn't be impressed if I'd "over-staked").
lawrence: great post... I am assuming you have a reverse compounding position sizing or similar to survive the occasional 6 losses in a row? starting with 100k, loosing 20% on remaining account balance: 80 64 51 41 33 or do you compound in a different way?