Read some mmm here. 1% rule toss that out the window. I don’t like trading cause every time I’m risking my hard cold cash. So when I do I want to make as much as possible each and every time. I’m certainly not going to achieve that if I only risk 1 or 2%.
I hear ya. And I do agree with you. I think everyone needs to look at their strategies performance over a long period of time and determine their risk tolerance from there. I have a high risk but high win percentage to balance it out. Could I change my r:r and keep the entry exit rules the same on my strategy? Of course I could. But through years of trial I’ve found 1:3 yields the most consistent profit. You can’t focus on win/loss or risk/reward or any one aspect of your plan and determine if it’s good enough or not. Their are more peices to the puzzle that have to be examined to make that call.
Account manager lol I like it. Just my opinion buddy hope I said that clearly enough
I agree with you.
I risk about [B][I]30% of my account[/I][/B], normally.
I have no worries because of it, since I make profits of 2% a day or more, on an average.
So if I lose 30% it takes me only 15 days or so of trading to make it up. After that, any further profits are gravy.
And I never have drawdowns - meaning, losing more than once in a row - because [B][I]I stay on top of it[/I][/B] after a loss.
In other words, I analyze why I lost, and NEVER make that mistake again.
My SL is normally 300 pips or more and my TP is normally 30 pips or less.
The likelihood of my SL being hit before my TP is ginormous. Once a year, if even that.
Besides, I also accumulate a “cushion” for trading.
Every single month I WITHDRAW 1/4 of my profits made during that month, and put it in the bank at a safe rate of interest, in a bank account that’s not tied up, so that the money is available when I need it.
This becomes my “cushion” for making up trading losses. I don’t touch this account for anything else except replenishing my losses in trading.
Over time, due to the money adding up every month, this “cushion” approaches 1/2 my account in size.
So even if I lose 30% on any given occasion, I have more than enough “cushion” in my bank to replenish my trading account.
Basically, therefore, [B][I]I am trading without any risk whatsoever,[/I][/B] because at most I could lose 30% of my account while I still have about 50% of my account in a safe place!
(I am lucky in that I don’t have to live off my trading profits - I have a modest but adequate pension with which I can meet all my expenses. Trading profits are just gravy for me!)
Cheers.
PS: lately I have come to realize that only 1/2 one’s account isn’t always going to be enough to withstand hard times, so now I advocate withdrawing, not 1/4 of one’s profits every month, but 30% of them. That way, over time the “cushion” exceeds the total amount of money in one’s account, and that provides a lot of peace of mind.
It depends what the trader is trying to achieve. Are the doing it to grow there account so they can trade bigger and maybe their trading for a living. And then theres the trader thats takes his profits because he is trading for a living.
Risk and Reward goes hand in hand, so if you have a very accurate system, then you may try to risk more than 1%.
i usually lose with 5% account. because this is my risky plan. i can get it again easily. when we can lose 5% we can get 5% profit in order. with demo account i test with 10% account. now it is ok. it depends on yourself
I guess I’m the only one who goes big or goes home lol I risk always way more then 10% on a trade
My risk is usually anything between 5-8% per single trade. At the same time, I don’t just go trading each and every signal/ potential opportunity; the analysis process is carefully refined to filter out and only take the highest probability setups.
I also don’t trade intraday. This is because unless the volatility was high and targets were hit earlier than expected, I prefer holding trades over a few days, but typically within the week. Each trade is an investment for me and I treat every single one as such - I prefer the bigger picture, rather than the small moves that are typically entered, profit taken and forgotten.
In high risk scenarios like yesterday’s FOMC Rate Decision and Statement, I use a max of 3% risk when “jumping in” to a trade that was unplanned (when awaiting a crucial data release for instance) and in which the currency pair is already moving.
I personally believe that the sort of work and preparation that you put in allows you to take on higher risk trades, because by doing proper homework and using a lot of discretion, you’re already increasing your probabilities of success.
I personally won’t recommend over a 5% risk, but as mentioned by other members, one has to take into consideration the amount of “homework” you have done in prepping the trade.
If that’s so, it highlights the huge difference in acceptable variability between poker-playing results and trading results.
An institutional trader with a drawdown anywhere near even a fraction of those magnitudes would no longer be employed, and a home-based trader in the same position would soon enough be looking for a job again.
If only that were so. The reality is that in the long-term, that would be account-destroying. The Kelly Criterion proposes recklessly huge stakes, under some circumstances, and in the long term would be highly dangerous (unless dividing its suggested outputs by a significant factor).
If that’s so, it’s only because (a) most forum members aren’t making a living from trading, and/or (b) you’d be looking at a self-selected group of “people who agree” because those who disagree have (unlike me) chosen not to post in the thread.
“It’s trading, Jim, but not as we know it” …
Here’s the thing: as hugely successful trader Nassim Nicholas Taleb has been explaining at such length and in such detail in his outstanding books, “black swans” are [U]far, far[/U] more common than most people realise or allow for, and [I]there are reasons for that[/I].
Almost the entire subject-matter of this thread is brilliantly covered in excellent book called “[I]Profitability and Systematic Trading[/I]” by Michael Harris (Wiley, 2007) of which some PDF and/or similar versions can be found online. I strongly recommend it. I know nobody who makes a living from trading who hasn’t mastered the fundamentals of what it explains (from either that or some other, very similar source). Statistics and probability - and especially the aspects of statistics and probability with which traders need to be familiar - are [B]very[/B] counter-intuitive. The markets also change, and the black swans are becoming both more intensely-coloured and more widespread.
Well hello, traders!
My goodness, Lexy, you are just amazing… that was a heavy-weight answer with great accuracy of language and argumentation… I am waiting for YOUR book on trading 
As far as I am concerned, I think it is a case of… live and let live…
My trading approach has gone into very long-term positions where I self-impose sitting through very high floating profit or drawdowns without succumbing to that ‘close the trade’ itch…
That in itself is a discipline, because I am aware of the markets and of the development of my position but I do not intervene… It is a new approach, by which I mean less than a year old, so I will have to wait for the
end of the year to draw the sums…
This approach, position trading (if you must call it something), is not suitable for everyone, just like scalping is not, or intraday is not, etc. Every trader, also, must not try to confuse his/her approach with a universal rule or, even worse, trying to impose it on others by shouting the loudest or making wild statements… We all need to keep a check on how relative our perception of things is to our own experiences, how they shape us more than what we imagine, and how we must always listen (even when we do not like being told that we may be factually wrong).
We also live in a culture where teachers must prove that they are right even before their pupils will listen, so when an experienced retail trader on Babypips corrects a newbie, instead of ‘thank you’, quite often we hear the sound of sharpening swords… I think that this is unhelpful… Freely given advice from someone who is doing well with their trading should be listened to with respect, and if it does not suit our trading or approach, we can leave it at that…
Happy trading!
I am down to about a maximum of 10bps per trade and 50bps in any one pair at a time (five trades in the same pair but respectively in five different accounts trading five different systems). So I like a lot less than the 1% rule. While I was no less than shocked to see the size I could trade in fx while controlling losses to a slow steady decline in account value, i realize that one black swan can set you back a very long way. And when it hits you have just two lines of defense: a small position size and a small deposit.
-Adrian
[B]Why the Kelly Criterion is not useful for most traders.[/B]
The inputs for the Kelly Criterion include:
1.) the net odds on the bet
2.) the probability of losing
3.) the probability of winning
At a roulette table we have these inputs. In trading we can only mimic those inputs in certain ways.
This is troublesome for most traders. Traders that do not use TPs really have no number for “odds”. A trade could be a -1R or a 6.25R or just about anything else. So they can’t put a number in there other than a range from zero to infinity.
The probability of losing and winning in trading are actually defined differently than at a roulette wheel. We don’t have to record any historical data to get that probability from the roulette wheel. We can simply count the number of slots to get the probability.
Some traders may use a probability of 1 in 2 (they can either win or lose, 50/50) but most talk about trading “when the odds are in their favor”. What they mean by this is that when a given set of circumstances has occurred in the past (some price action event occurred or some level was reached either by price or some oscillator or indicator of some sort) a certain outcome resulted at some percentage of the total historical instances of the occurrence. It is very debatable as to whether historical data gives us any meaningful probability. If the number 6 was hit at a significantly higher frequency in the past on a roulette wheel, this does not make 6 more likely to hit in the future (unless there is some anomaly in the wheel like a groove or bump that actually contributes to landing the ball in slot 6 of course).
But [B]the real Kelly Criterion breaker[/B] in trading is the possibility for a loss greater than 1R. That of course, is the Black Swan. At a roulette wheel there is never a scenario wherein the dealer says: “Sir, we know you bet ten dollars but I see you have a hundred and fifty there and this time we are going to go ahead and take that too.” A Black Swan in a market can do that. Your stop loss should get you out at your predefined 1R. You might say: “I am going to bet one hundred here.” But the Black Swan can say: “That is nice that your stop is there, but this time I am taking six hundred.”
-Adrian
If I may add to the thread. I think simply believing that risking 1% of your account is great money management is a big time flaw. Reason being is that risking such a small portion of your account, makes a trader ok with "holding a floating loss. Say I use 1000:1 leverage and risk 1% of my account then margin call would be well over EUR/USD 5 year range, but in the real world of forex, no one simply holds on to a floating loss without trying to avg it out! So quickly a 1% can turn into 2% 10% or even 50% depending how much you allow your trade to float before adding more.
Leverage is dangerous for those who don’t aim for precision and accuracy when they trade. I for one aim for both, and when I am able to trade consistently the results are very impressive. For any noob trader try focusing on the lower tf ( say 5 m) and look at the chart backwards. Look at how clean runs of 30- 40 pips occur, but look at it backwards. That will help you identify the formations which occur inside the accumulation zones which sets up those 30-40 pip runs. Trading those patterns will allow you to risk more then 1% of your account, or even 1% without giving up 25-50% before hitting your sl or tp.
Position-sizing of 1% of your account (if that’s your choice) on a trade means that the [I]maximum[/I] proportion of your account exposed to risk on that trade, even if your stop-loss is hit, is limited to 1% of your capital. Not that “it can turn into 2% or even 50%”.
Position sizing is something that is so simple and yet so complex, especially for long-term trades, because it is not just the percentage, but the calculation of rollover (which can change over time), the changing fundamentals and average range of an instrument over time, etc.
Rigid formulae are great for risk management but understanding the market in action and our reaction to the market over time are not a matter wholly numerical. Where 1% of our account is on the line as the total risk limit for all of our combined positions, it does not in itself constitute a trading strategy, or rather it does not constitute a satisfying ambition for me, because it would be like saying: “I will blindfold myself and drive my car through the traffic, safe in the notion that I have my seatbelt on, should the worst happen”.
Constructing a trading philosophy, as well as a strategy, means an understanding of our trading needs, which goes into capital management as much as our psychology and as much as a host of other factors beyond the strictly mathematical… But there are so many types of trading and we cannot just pontificate about one being better than the other… The war on numbers is the stuff of spin doctors and PR… We are here to make it as traders for ourselves… And if risking 50% of your equity yields you 130% back, then you may well say: “What about the 1% rule?”… I put my hand up and say that I cycle without a helmet and do not use a stop loss until a position is well into hundreds of pips… Dealing with mortality, on and off the screen, is an individual choice and we must be prepared to take the consequences, every day…
I would not like to share my trading or my cycling with someone else because my risk exposure may not suit someone else… The accidents of the road, like on a trading day, are indeed unpredictable events, and our helmets or stop-losses are there as insurance, not to undermine our trading judgement and independence… but there are different ways of using that insurance, so if you are not a “1% type” then you must construct your trading in a way that still leaves you with some profit and has a strategy of some kind…
Long answer to say: thank you all for the dialogue so far, it shows that we are all so different.
GOod night,beautiful people.
I am off to sleep.
Let face the reality Pipmehappy most “experienced” traders one babypips are poor losers who learning newbie to become losers …
RESPECT they really deserve RESPECT !!!
Let me show you a person who DESERVE RESPECT for his trading …
[B]
Let take a look into the realistic world let find someone who living of trading, study his money management,[/B]
Example jeff with one of his account 2,5 mill who showing everything to everybody ,
I thought my money management was conservative . 0,1-0,2 % a trade .!!!
THIS IS CONSISTENT TRADING STUDY;;;
Yep, and the rest of us have a spare 2.5 mil lying around to speculate from. Jezz life would be easy and I know from my perspective I would not be ****in around speculating if I had that sort of resource available.
So your example is about as useful as newspaper is as a fire blanket.
Keep it real bro.
Unless Monopoly money counts? I am in
:-p