As a rule I have always stuck to the traditional 2% rule. Lately however after 18 months of trading I have realised that I have won 70-75% of my trades. Now I know that’s not certain in every case but it feels like a good edge to me!
I am toying with the idea of 5%? Anyone else trade that much? Or higher even?
I am personally limiting myself to 8% per trade at the moment, but I have risked less and much more… I do not like to say this because I have not implemented it myself, but… I would encourage anyone who has not done it to ask themselves if it were possible to give a trading percentage (i.e. percentage of their equity/capital) to represent the measure of confidence in a particular trade; for example:
1%-2% = low confidence or expectation of a particular trade working out in our favour;
3%-4% = low-to-medium confidence or expectation (etc.);
5%-6% = medium confidence or expectation (etc.);
7%-8% = medium-to-high confidence or expectation (etc.);
9%-10%= high confidence or expectation (etc.).
How easy or not it may be to quantify one’s confidence, well, that is indeed a grey area…
I would agree with this! There have been certain trades where I have taken a bit of a gamble almost with my percentage size provided I have the technical and fundamental support for the idea. Bigger than normal but still not crazy account busting no’s. In reality those trades laid off and I made in on trade what it would take me 2-3 weeks to make from the normal 2% rule!
I restrict myself to 1% usually, and try to let compounding do the heavy lifting (as opposed to taking higher risk).
I once traded 5%-15% per trade over a year ago using a derivative of the Kelly formula. I was up 50% in three weeks, and lost all of my gains shortly after. The real danger is that you just don’t know the future. There may be weekend gaps or market illiquidity that render your stop loss useless, and that 5% you risked may inadvertently become a 10% loss.
Kevin, how true that is: knowing the future is just not what traders should try to do…
Over on DailyFX one of the trading instructors wrote about risk management as that state of mind where traders seeking to enter/exit a trade plan in terms of potential losses FIRST, and profits SECOND…
When we bet a lot more than we are comfortable with on a certain outcome which does not materialise, we then feel shocked at our own recklessness… This euphoria, which makes us feel almost invincible, is how we, as humans, are wired… Recognising that the trading mind-set is something separate, to some degree, from daily life mind-set is what can truly help us from making costly mistakes.
New York Jackal: stick to the 2% rule, if you wish… You know, and we all know, which one of these two will win the race, in the end:
Happy trading.
I personally like to keep it at 1%-5% of risk per trade.
Same here, I keep it between 1%-2%
I wish to point out the obvious, here, and that is, that we cannot detach the idea of trade size from that of
stop/limit size…
In other words, here is an example that may seem familiar to a few traders;
assuming that the balance were the same as the equity (i.e. that there were no open/floating positions), we could
open a trade at 1% of 5k account, that is 500 GBP (or other currency); with a minimum available position of 1k,
the leverage will be 1000/500 = 2:1; with a 1k position, every 10 pips would be worth 1 GBP; so let us say that we only
had one position open, and set a limit of maximum drawdown of 10%, that would be 500 GBP, which would equate to
our position moving 500 x 10 = 5,000 pips against us!
Now, on a 500 GBP account, this would mean that we could tolerate a 500 pip move against the direction of our trade, which is still quite a wide movement (a 5% move, in currency terms): with this tolerance level, even a small account trader could participate in long-term swings and, for example, take advantage of carry trade with significant rollover interest…
However, if we, for example, quadrupled the trade size to 4k, on the 5k account, say, we would then divide the maximum drawdown limit (5,000pips or 10% of the account) by four, thus 5,000/4= 1,250 pips; for an 8k position, we would then halve this, to 1,250/2 = 625pips; and so on…
So we must always plan not only the trade size but also the maximum drawdown in terms of pips and percentage of our account, using appropriate stop/limit sizes.
Happy trading.
Same. Sometimes it is hard to maintain less than 3%. We need to risk something to get a higher return. However the maximum risk won’t be above 5%
If you go to 5% and experience a losing streak of 10 trade, highly unlikely with a 75% win rate, the max draw down of 50% equity. To avoid that try a rule like decreasing the percent risked per trade after 3 losing trades. Some thing to bring down the max draw down if it happens.
Or you could try staying at 2% of trading capital, and 5% of the profits (market money). Then every 3 months or longer harvest the market money into your trading capital and start anew trading 5% on profit market money.
Another thought is to try out the fixed ratio position sizing. With high probability set ups I think your idea of 5% is good for select trades. All traders at some time in their career will experience a 10 trade losing streak. For me staying at 2% is for survival. Small accounts can take more risk and be replace with another account easier.
good luck on your decision and let us know how it works out for you
All my trades are made with high confidence and expectation. Anything less and I do not take the trade. What you might mean is High Probability trades. Like a set up you have seen in your system that gives a 90%+ probability based on your records experience and stats. Then yes, go for the 5% or 10% on that trade. Set up your ascending % risk model on High and higher Probability trade setups. Do away with all low and medium confidence trades.
Just my opinion, good trading PipMeHappy
Depending on my confidence in a trade and how the markets are,
My risk is from 1% - 8% on a single trade, and so far that’s have been working out fine for me.
I know that the general opinion is not to risk more than 1% but it’s for hard to do so when your starting capital is less than 10k.
golden rule: no more than 5% per trade. never. i’m trading ome contract each day at 2-3%. depemding on clarity of signal. if you risk too much its gonna influence your psyche and you’ll have emotion im your decisioms. veeeery bad idea.
I personally like to trade in low risk like 0.5% . I read not should take risk more than 1% because it is too big for a trader . I think one can make profit with this proper risk plan if he understands market mood , ups and downs and risk management. High risk is not surety of profit however we can loose a lot if fail to adjust it.
1 percent helps with your emotions, however if I caught the right trade and by that going steadily in one direction I would gamble and increase as it went up, or go all in until it ended. I have only seen this work 1 time in so many years
Tell me please, do you risk 8% on long-term trades or short-term ones? Just interesting…
That all depends on the Market situation. Each trade is not similar and also not the risk involved, will be. You need to work according to Market Situation.
I see my trades as in baskets or samples if you like. I backtest my strategy and figure out the worse week and then count backwards. It’s a completely different way of risk management, but it works for me. The position size for the whole week remains the same. The larger your SL, the better change it has to be profitable pr trade.
Let’s say your pain level is 10% drawdown in a week, and your worse week is 500 pips in backtesting, well then you adjust your position size accordingly for the week.
Works for me and I know it’s a bit contrarian