That is a wonderful observation. Lets explore it more indepth. Question: Let's say a trader favors smaller stop losses so that way he will experience small losses? Answer: Incorrect!! The smaller the stop-loss the higher probability of loss!!! Many small losses equal ONE BIG LOSS!!! If the QQQ's have an average daily range of 5.00 bucks that is informing you that the intra-day volatility favors wide stops not the other way around. The objective is on being corrrect in trading with the trend to ketch a 1/3rd of the weekly/Monthly bar. You will never do that "scalping" or setting stop losses to close to the market. If your premise to your system is flawed you will lose ALL of you risk capital eventually REGARDLESS!!!
Rex, This discussion is NOT about setting stops close to or far from the market... its about % risk as a proportion of account equity... the absolute size of the stop is irrelevant to this discussion, my friend... Candle
Given that the majority of traders are net losers, it doesn't surprise me that the majority of traders in this poll (so far) have voted for the larger % risk of account options...
So true. I have done extensive testing on stops. The conventional wisdom about stops is a crock. At least with stock trading with mechanical systems, tight stops will kill you. It goes against intuition, which is why you still see so many articles talking about adding stops that are too tight. This is not a gut opinion, but based on a whole lot of testing. g
With my mechanical systems, I use only a VERY wide disaster stop, and even that is just a psychological crutch. It doesn't really improve results or lower SD. But as you point out, this thread is about % risk. I control that by money management. Knowing that the system will signal some trades that will result in significant DD's, I size the positions, so that no individual trade can be a disaster. g
One way to avoid the Account killer type "stock halted, opens down 50%" scenarios it to use a max market position or max "Heat". To simply use a % of equity when your trading a larger account is crazy. ie: say one is trading with 100,000 ...Divide it into 10 . Now take 10,000 dollar positions. You can allow a 10% stop on each position.... this translates into a 1% Risk of total equity. But like you guys said, you could wake up and find one of your positions down 50 % ...no problem......this would really translate into a 5% loss of your equity. Hardly a suicidal disaster. Your still in the game. Also, positions should not be highly correlated and being hedged long and short isn't a bad idea either. So basicly I like to use 1% of total equity but do it with a cap on position size as well. Nick
Max 3 point stop plus 1 point for slippage will always be at or below 2% of account for me. For example 5 ES with 4 pts for the stop (3 pts + 1 pt slippage) would equal $1000 loss if the stop was hit, which would be 2% of a $50,000 account.
I think it largely depends on how/what you trade. I trade a portfolio of generally 5 to 15 stocks at any one time. Often about e..g 2/3s will be long and 1/3s will be short. I don't really know how to quantify the "catastrophic" risk other than to say that each position has it's own risk and that my total risk is the sum of the individual risks. I realize that worst case all my longs could gap down and all my shorts could gap up, but that's unlikely. That is one of the calculated risks we all take with trading. If someone does not like to take non-trivial risk, invest in bonds/bills and hold until expiration PS: I'm in the 2% risk catagory for the entire portfolio
... When I read about 20% account risks I am frankly shocked. I dont think we would be in business very long if I allowed 20% unhedged account risks.
Candletrader, I'm not sure you can trust the poll's numbers. To me, your opening post sounded as though you were asking what percentage of my account is exposed at any one time. That could be a reason why you're getting a lot of responses over the 5% figure.