Advanced Risk Management Rules

Hello. So I already have an understanding of risk management, which moves higher than just using a stop loss. I consistently risk 1% per trade. For day trades I set my stop at breakeven when 50% of my take profit is hit and for swing trades I partial profits when certain levels are hit. Are there any other advanced risk management tips that I
can utilize in trading?

Thank you

Risk management is not purely concerned with avoiding or minimising losses - that’s just a form of short-hand that educators use to aid focus.

but the focus on individual trade performance is too narrow - we should really be looking at strings of trades per pair or per currency, and trading performance over an extended period. In both cases, pyramiding winning positions and avoiding cutting winners early are really important.

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Good idea. You already have a good strategy. If you follow that strategy and trade, you will be able to profit consistently.

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Yes. Here is an advanced risk management tip. If you find a winning trade that reaches your profit goals if you want to be a member of the elite 1% of global traders, you would need to add to your position not taking any profits, and let the trade run to its conclusion. Ensure your S/L is moved up to or near the breakeven entry and you will also need to set up indicators like MACD histogram and PSAR to monitor the strength and the trend. I would recommend that a new trade is 25% lot size of the running trade, so as to negate any risk increase. And if it continues, you could add smaller lots, making sure your S/L is moving also…

This is the ultimate challenge for even the 20% of profitable traders. The rationale is mathematically sound that a trend is more likely to continue to its finale, than reversing - but with retracements along the way. So higher highs and higher lows candles, or lower lows and lower highs candles keep your trade running.

It sure is not psychologically easy to let profitable trades run, without scalping some off, let alone adding to it. Demo account it.

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Thank You, I appreciate it

Thank You I appreciate it

I’d argue those two sentences do not align w/ one another. The average person learning how to trade won’t be able to account for “risk management” that includes “adding to a position” arbitrarily as a trend ,arbitrarily and randomly, continues in some direction. It’s a pipe dream.

If someone took your advice straight up, they’d be ADDING to their risk, not managing it.

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Yes, I omitted to say that the S/L needs to be brought up to or close to the breakeven entry to negate the risk and only enter a new trade at 25% of the running trade, and scaling down right to the end…

My original response has been amended, thank you. By the way, pyramiding is a well known and useful technique which involves moving the S/L in line with the trend.

Remember, we’re here to make money with a minimum of risk, bottom line. This is one such way.

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Moving a S/L for your initial position does not mitigate the risk for anything you’ve added after the market moves in your favor. Are you saying that you’re only adding to a position where you know you can lock in a $ amount of profits, and then ONLY risking those profits when adding a new position?

Being honest, this is all too complex and will lead to over-trading and over-management (in my opinion). No clue why you would need to commit extra capital when you can just book the trade and move on to the next opportunity. Risk reward is important…

Managing risk is not really all that complicated and basically is just concerned with two interrelated factors, one absolute factor and one relative factor:

  1. being aware of what your overall total exposure is at any time, both in terms of position sizes and possible losses. You should have an absolute value that your losses should not exceed at any one time however positive you feel about the open trades. If this level is too high then a string of losses may cripple your account such that it is difficult to rebuild again.

  2. evaluating the results of (1) with your anticipated rewards from your open trades. If the target level set is fairly limited with respect to the stoploss value then the risk is not worth taking even though it fits your maximum loss criteria. A set R:R parameter should not be too rigid because targets and stops should be trimmed to sensible chart levels rather than mathematical values, but the anticipated reward should “make sense” with respect to the loss possibility in order for the trade to be worth taking. If it isn’t then ignore it and wait for the next.

If you only have one open position then it is a simple assessment as you have already described. But if you have multiple positions open then there are other issues such as possible correlation between similar instruments, where an adverse move will have a similar impact across all correlated pairs.

Sometimes risk is not totally quantifiable and one has to evaluate the benefit of taking an open risk relative to the anticipated gains. For example, a long term trader will leave positions open over the weekend even though the market can easily gap through and beyond the stop level when it opens on the following trading day.

This is bit of a wordy response but basically, your risk managment is only about being aware of what your real absolute risk is and deciding whether it makes sense in terms of a) your account balance, and b) your anticipated gain if it works out.

There are pros and cons to pyramiding, but that’s common to every tactic that could be used.

What’s surprising is not that you’re in the “anti-pyramiding” camp but that you seem unfamiliar with the concept. Sorry if I’ve misread the situation so perhaps you have more personal experience than I thought and have some practical input which would add to the pyramiding “cons”?

All good, and yes- “adding to winners” is one of those adages that always gets thrown around, yet there is really no black-and-white definition of how one actually does that. The con is what I’ve already said-- “adding to a winner” is simply adding more risk.

I buy 100 shares of ABC @ $10.
Stock moves to $12, so I buy 100 more shares.
My original exposure was $1,000, and now it’s $2,200 (over 2x).

This is a 30,000ft example meant to illustrate the fact that the moment you “add to a winner” can be the reversal of the trend, and your original trade (which you should have just booked the profit on) now becomes “an investment” that you have to potentially manage for a much longer timeframe to either make money, break even, or repair if the position moves against you heavily.

A stop loss will work the majority of the time, however, markets regularly gap and weird things happen…EURCHF, Oil going negative, Gamestop, etc etc.

With respect, you haven’t understood the concept. I suggest you google it.

Buy 100 shares at $ 10 with a risk of 1%, Stock moves to $12 which is your first profit target to reach breakeven and therefore you cannot lose money on that trade. And your risk is ZERO.

So you move the SL accordingly to that position or maybe give a little leeway. At that point you open a new trade but only 25% (25 shares) of the winning trade. That is your new risk, i.e. 0.25%.

And IMO, it’s more likely for the trend to continue than to reverse, that’s been tested and studied by pro traders. it does retract usually and that’s what your stop loss is for if you get unlucky on a big one. If it does reverse back to breakeven you’ve lost your potential profit and suffered a 0.25% loss. If it doesn’t, you make money.

And in my opinion, not to add to your winning trades is a losing strategy, and why traders scalp profits is because they FEAR losing it… It’s a psychological emotion to stop pain at all cost.

And I also suffer from these occurrences, I’m not immune to fear, but I’m trading a small $!000 live account. It’s far easier to let your winning trades run if you’re trading from a $10,000 account, providing you’re keeping your risk outlay at a point where it doesn’t hurt to lose a trade. .

I hope that helps you understand the dynamics of adding to winning trades, better now.
Keep cool…

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If we accept a 1: 2 risk-reward in every trade, it is possible to control the risk. And money management and risk rewards are an important part of trading.

Your risk is never zero.

A risk of 1% @ $10 / share is $0.10. High probability/likelihood that you’ll be stopped out for many reasons- one being simply the spread. Unless you’re trading something like EURODOLLAR futures (not EURUSD) which literally barely moves (or, any other instrument that has little to no volatility which severely limits your investable universe).

Sticking by my initial claim…

Moving on though…

Ok- nothing fancy here.

Ok, so you’re long 25 shares @ $12.

So, following your example - my question is:
100 shares @ $10 = $1,000 value (new stop at 12 - potentially locking in $200 of profit)
25 shares @ $12 = $300 value (where is the stop for this position?)

Apologies, I do not trade stocks, so I’m not familiar with the process.

However, generally speaking, You need to choose your risk percentage to match your lot size. I keep my lot sizes low so that I have leeway on my S/L positions if I’m risking 1% of my capital.

In any event, because I am managing the trade throughout its life, I’ll cut losing trades before they reach the S/L in most instances. For me, it’s painless. For other traders they hate losing, I do also, but I hate losing big, more so. That’s money management in action. There’s always a better trade awaiting and I’ll use the ‘savings’ on the losing trade to help fund the new one.

Read up on probabilities. From your posts you tend to disregard the more likely outcomes in favour of the worst outcome, even if it’s less unlikely. For example if my losing trade reaches 75% on the way to the S/L, I’ll cut it, because it’s a 75% likelihood in favour of hitting the S/L instead of the 25% likelihood of reversing back to the breakeven position.

Keep cool, and good luck on your journey to success.

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No difference between entering a position in stocks or forex and moving your stop to lock in profits.

Ok, so keeping with your example- for the additional 25% where is your stop? It doesn’t matter if you’re trading options, FX, binary, crypto, futures, equities, whatever.

Where is the stop for the additional position? Be a critical thinker and a trader at heart- there is nothing preventing you from taking a walk down this road as a mental exercise.

Sorry, what? How are probabilities quantitatively identified in FOREX trading? I’m an options trader, everything I do involves probabilities that are actually quantifiable…nothing like that exists in any other instrument on the planet.

This is not quantitative. This is qualitative and anecdotal.

This is my point all along. When you press anyone about “adding to winners” it always ends w/ some circular argument and lack of black-and-white evidence or strategy that can be presented to solidify their case.

You do it your way, I’ll do it mine. End of conversation as you seem incapable of grasping the logic behind adding to winners. I do not want or need another response. Good luck on your journey.

I have let the moderator know that I do not want any more posts from you, Sorry about that.

good luck. Steve.

Thanks for proving my point. Good luck out there.