Profitable traders how much do you risk per postion?

Discussion in 'Strategy Building' started by Daal, Nov 24, 2005.

How much of your total equity you risk per position?

  1. 0-2%

    60 vote(s)
    48.8%
  2. 2-4%

    32 vote(s)
    26.0%
  3. 4-8%

    11 vote(s)
    8.9%
  4. 8% or more

    20 vote(s)
    16.3%
  1. The question is, which do you add the most weight to?


     
    #11     Nov 24, 2005
  2. cnms2

    cnms2

    It depends how many 2% risk positions you have opened simultaneously.

    3 times 2% = 6% is ok
    10 times 2% = 20% is probably not ok; it depends on your system
    30 times 2% = 60% is definitely financial suicide.
     
    #12     Nov 24, 2005
  3. cnms2

    cnms2

    I use 1% per position with 6% total risk per account. It fits my risk comfort level and trading patterns.

    If you want to optimize the risk vs. profit, you can use a modified Kelly formula, i.e. 1/5 or 1/6 Kelly, to determine your maximum risk per account. Then divide it by the number of positions you have opened simultaneously.
     
    #13     Nov 24, 2005
  4. I actually understand you, now.


    If you want to optimize the risk vs. profit
     
    #14     Nov 24, 2005
  5. acrary

    acrary

    I'm not concerned with risk of ruin. I hate deep drawdowns. My testing has shown me the single biggest factor in the depth of a drawdown is the amount risked per-trade. At 1.5% at some time a account will experience a 30%+ drawdown. For my trading, 10% is as much of a drawdown as I'm willing to accept.
     
    #15     Nov 25, 2005
  6. Daal

    Daal

    Doesnt bother you the fact that you could make more if you had risked a little bit more. As ralph vince says "if you are not trading for optimal
    profits, then you belong on a psychiatrist’s couch rather than in the
    markets”. Of course his optimal F is suicide but he still makes a good point
     
    #16     Nov 25, 2005
  7. acrary

    acrary

    Trading is not about maximizing profit but rather maximizing the reward (profit) to risk (max. drawdown) ratio. In optimal F the maximum reward:risk ratio is achieved at the optimal F. By using reverse notional sizing anyone can achieve the same reward:risk ratio independent of the max. drawdown. There is nothing to be gained by increasing size per-trade unless you just prefer to have larger drawdowns.
     
    #17     Nov 25, 2005
  8. Realistically, "optimal" is best viewed after the fact. Because the future is far more uncertain than a historic probability distribution, you need a wide margin for error if you wish to survive the long term. Ralph Vince seems to live in an imaginary, optimal world. If you don't agree with his Optimal F, then why would you agree with his platitudes? Anyone can be a hero in his own book, but how is his actual trading going? That's not a rhetorical question, I'd really like to know.

    Personally, I'm not very exciting. < 1% on intraday ES trades. One day, I just may go crazy and do a full 1%.

    P.S. I share acracy's sentiment regarding drawdowns. I have had major drawdowns in my earlier trading, and I had difficulty coping. For me, there is value in a smooth equity curve.
     
    #18     Nov 25, 2005
  9. Daal

    Daal

    Come again?
     
    #19     Nov 25, 2005
  10. Agree with you. Based on reading in other BBs, it seems some traders ignore "black swans" type risk.

    Not just the occasional market event, but events in placing trades such as loss of internet connections, somebody hitting a telephone pole, failure of their computer with a big position and no backup, exchange problems and the like.

    DS
     
    #20     Nov 25, 2005