Discussion in 'Risk Management' started by JCDST1979, Jul 20, 2020.
I think this is the first question about risk management one needs to ask himself.
Don't you think?
Without context, the question is meaningless-to-the-point-of-dangerous.
• What capital is available?
• What menu of alternative uses for available capital exists?
• What range of risk&return attach to each alternative?
Okay: now your question can be asked without either sadly under-investing, or tragically over-investing, in any trading activity.
Currently about 75% of liquid net worth. This includes unlevered stock positions + notional values of levered instruments. I keep it mostly market neutral these days to keep it relaxed.
What % of your total net worth is your 99% VAR might be more appropriate.
To make any real money in the markets... you need to make large*, non-hedged plays and be correct a significant percentage of times. That means you need to trade with reasonably tight stops... which also means you need to have "quality" entries.
*Recall a story from years back about a guy making a high rate of return who was trading the Fidelity Selects when they had hourly pricing. When asked, "what percentage of your money are you trading with this methodology?", he said "3%... the rest is in T-Bills". You can do lots of things... even be reckless when trading very small... but you can't make any money that way.
About 200% (with leverage) on an equity index trend following strategy that trades about 6 times a year. All in/all out each trip. Day trading /ES I usually take on a notional value 1/3 the size of that specific account which is a much smaller fraction of overall net worth, although the amount risked when accounting for stops is less than 1%.
Now that's a darn good question - On futures I am using 1% of my capital, with equities from 10%-50%. This is more than enough to move the equity curve up plenty - I do this full time.
I never use additional margin for equities trades but will use the day trading leverage with futures. For example riding a winner I will go as high as 8 ES or 5 NQ contracts, point being you don't need much with futures to bend the needle.
For the better equities trades, 10-20% of capital bends the equity curve needle plenty while hot doing major damage in the worst case scenarios.
Daytrading I never risk more than 1% of my capital on any 1 trade.
I day trade and have a small account. I am also younger with few obligations. So in theory I could go b**** deep, to scratch a few halves of a percent even, with the firms entire alotted bankroll even. havent gone 10x yet or added the homies life savings, but if it was a bet I thought the risk was worth it I may possibly take such a leveraged position. For example, no way in Hell I would go all in a lowfloat momentum play short or long even with my favorite enemies bankroll, not even half my account, again still daytrading small account two completely different answers.
If you tell us your risk tolerance (this is a personality thing), max acceptable drawdown (this is preservation of capital thing )& goals (this is what you expect to get from this venture) than we can try to answer that first question.
the rule is 1% of account for 'trading'
for investing it's total loss or 10%
large institutional investors cannot sell their private equity investments. and like Buffet it's 33% and lucky if they can find a bag holder. to buy their soon to be worthless stock the buyer could be short position who need to cover or some hedged fund or something.
many portfolio managers have 1- 3% of their investments in high risk speculative private equity investments that can generate alpha returns.
you cannot beat the market if you are the market.
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