No one is saying you need to risk only 1%. What Neuroway is trying to say is that it is possible to have a close to 100% system win rate so that the 1% risk control become meaningless.
We are approaching unknown waters, archeolog108. There is lots of esoteric dumbness experimenting with the markets at present. Having lots of accounts give you an extra-protection level because, in the event of a big disaster (remember the CHF in 2015, when suddenly, out of the blue, the SNB announced that it was unpegging it from the EUR)? Well, if you have lots of subaccounts and are strategically diversified across them, you stand a better chance against someone who has only one account with one broker, because the slippage can become very, very nasty in a situation like the CHF in January 2015, and it can really wreck havoc into a leveraged account.
Well, show me a close to 100% win system with a volatility of 1% and I'll show you a poorly optimized jewel. Or you take too few trades, or the trades you take are not big enough. You can easily double your gains with it. By pimping the volatility, of course.
I absolutely agree, Xela. That's exactly what I would do with an account trading on BTC, for instance. A 1% exposure and 1 single BTC trade in an account is perfectly acceptable, given the volatility it has. But I wouldn't do the same on the US 10Y T-Note, for instance. With the T-Note I'd look more for a 20% exposure, or even more, because of the ungodly inertia of the thing. My point is that a trading system can become like a F-1 car instead of a gaz guzzling low perf comfy SUV. You won't become Michael Schumacher or Fernando Alonso by cruising on the F1 tracks at 65 MPH. You gonna have, at some point in the race, to bear more risk.
Nice one! Indeed, boatloads of books have been written on the subject. Risk and reward are correlated, but only until you blow out your account. Or crash your car (in the case of F1 racing).
That definition is true Elite...Trader material, The ability ...to Maximize gains in the face of Risks , Most people on this site are rather just mini-vans or golf carts or budget 4-cylinder engines, the way they trade or approach the market race track in their philosophy and mindset and tactics and overall strategy. But this is not to say or imply though...to be a stupid, crazy gambler. There's a fine line between skill and taking risks...and just being a dumb, blind gambler.
@Xela. As a financial advisor (professionally) as well as an active trader (personally) I always consider the risk-return characteristics of such a strategy as opposed the traditonal long term investment models...blah blah blah. Alas...compliance/regulatory issues would never allow me to engage my clients in such a strategy even if I could make it work from a business model. No real point here...your post just touched on something I was thinking about. Regards.
Pro traders, at least those that have done well, typically risk less than 1% of their capital per trade, some may risk as much as 2%. Even the math expert traders like Ed Thorpe are in agreement that risking more than 2% of your capital on a trade is just to risky - otherwise known as on the road to ruin.
I don't think Peter Brandt was one of the Market Wizards in Jack Schwager's series. Also you have actual Market Wizards like Ed Seykota saying up to 5% can be ok. "I intend to risk below 5 percent on a trade, allowing for poor executions. Occasionally I have taken losses above that amount when major news caused a thin market to jump through my stops." - Ed Seykota Another Market Wizard, Michael Marcus, said the same thing: "The first thing I would say is always bet less than 5 percent of your money on any one idea. That way you can be wrong more than twenty times; it will take you a long time to lose your money. I would emphasize that the 5 percent applies to one idea. If you take a long position in two different related markets, that is still one idea."