if you have daily timeframe trades and 4h, and even 1h trades going, does that muck up the equal risk thing? if all trades are 1 or 2 % risk, but some end quicker, then they are taken more frequently and bias results more and risk is not equal? what is the standard approach here?
[B]Risk (in any trade) is [U]independent[/U] of the duration of that trade.[/B]
If you place a long trade at 1.5000, with a stop-loss at 1.4950, you are risking 50 pips, regardless of whether your stop-loss is hit in 5 minutes, or 5 hours, or 5 days.
Fifty pips represents some percentage of your account (say 1%, just to pick a number). You are risking 1% of your account, whether your stop-loss is hit in 5 minutes, in 5 hours, or in 5 days.
[B]Risk (in any trade) is [U]independent[/U] of the time-frame you happen to be looking at.[/B]
Price is price. In the example above, if a long position taken at 1.5000 gets stopped out at 1.4950, it doesn’t matter whether you are watching that happen on the 1-minute chart, on the 15-minute chart, on the 1-hour chart, or on any other time-frame — [I]or on all of those time-frames at the same time.[/I] On every time-frame, your risk is 50 pips, and that represents 1% of your account.
The only difference between those time-frames is how many candles there were between the time of entry and the time of exit.
okay then, i’ll just keep the risk % the same regardless for all kinds of different timeframe trades i do.
I’m just wondering now, if you’ve got e.g. 1h setups going alongside daily timeframe setups (which can go for a few months i think) does that make one a swing trader or a position trader? this site suggests we be one kind of trader. or maybe we’re a bit of both.
You could look at it this way Clint, but I would argue that to the extent that time frame influences frequency there is a duration-risk link.
By that I mean you need to consider how often you trade in a given time period when figuring out your risk per trade. This is based on the idea of maximum adverse excursion (MAE) and losing streaks. It’s all fine and good to say I only risk 1% per trade. There is a massive difference, though, between risking 1% per trade when you trade once a day and when you trade 10 times per day. In the former case you’re only risking 1% per day. In the latter you’re potentially risking 10%.
Granted, you’d probably have to have a pretty awful day to lose on all 10 trades. I think you get the point, though.
[QUOTE=“rhodytrader;738552”] You could look at it this way Clint, but I would argue that to the extent that time frame influences frequency there is a duration-risk link. By that I mean you need to consider how often you trade in a given time period when figuring out your risk per trade. This is based on the idea of maximum adverse excursion (MAE) and losing streaks. It’s all fine and good to say I only risk 1% per trade. There is a massive difference, though, between risking 1% per trade when you trade once a day and when you trade 10 times per day. In the former case you’re only risking 1% per day. In the latter you’re potentially risking 10%. Granted, you’d probably have to have a pretty awful day to lose on all 10 trades. I think you get the point, though.[/QUOTE]
Rhody,
Your risk % is not changing. Just how often you’re exposing yourself to the risk.
But I’m not educated on MAE my definition is probably different than yours.
That’s what I’m saying. If you increase your frequency of exposure it impacts your overall risk.
But I’m not educated on MAE my definition is probably different than yours.
MAE is how far your account equity goes against your from equity peak to equity trough. The greater your per trade risk, the higher the MAE.
[QUOTE=“rhodytrader;738575”] That’s what I’m saying. If you increase your frequency of exposure it impacts your overall risk. MAE is how far your account equity goes against your from equity peak to equity trough. The greater your per trade risk, the higher the MAE.[/QUOTE]
Interesting. Thanks.
That’s what most traders do, because it works.
You won’t go astray with that approach, IF you have a system or methodology with an overall positive expectancy. That means, out of (let’s say) 100 trades, [I]each of which is based strictly on your system,[/I] the total profit produced by the winners exceeds the total loss produced by the losers. If that’s the case, then it doesn’t matter whether those 100 trades were taken in one day, or spread out over an entire year. Overall, you win. And each individual trade exposed you to the same predetermined risk.
There are no universally-accepted definitions for swing-trader, position trader, etc. Various authors and teachers use those terms in their own, unique ways. And they seldom tell us the actual metrics they are applying to each of those terms.
Here is the way I use those terms in labeling the various trading styles:
As for restricting yourself to one style of trading, that may be good advice for beginners. It amounts to saying, ‘Learn one thing at a time’. But, when you have achieved consistent profitability with your one trading style, it makes sense to broaden your horizons. If you are basically a swing-trader, you won’t always find suitable swing-trading set-ups; but, you might see a promising day-trading set-up, and decide to trade that set-up. The ability to transition from one style to another comes with practice and experience.
Hi, John.
[I]Risk per trade[/I] is precisely what I was trying to focus on. That is, I was referring to risk in the simplest, and most commonly-used sense: the loss you would take if your stop were hit in a particular trade.
I’m disagreeing with you [I]only slightly,[/I] and with [I]great caution.[/I]
I accept that there are more esoteric concepts of risk, which you understand far better than I do. I respect your deep understanding of econometrics, and I will be the last person ever to challenge you on the fine points of that discipline.
(I hope that came across as straightforward and sincere, because that’s how it was intended.)
.
Time frames have nothing to do with your risk exposure. You can use the same risk on every trade taken on different time frames. Just fix a dollar amount you feel easy to risk on a particular trade and then adjust the lot size depending on your time frame or stop loss.
I don’t disagree with you when considering a single time frame. If one is trading in multiple time frames, though, I would suggest it should at least be considered that per trade risk be different for the different time frames. For example, it might make sense to risk 0.5% on intraday trades, but 2% on position trades.
It is not strictly time frame, but rather frequency, which is the consideration. Shorter-term trading, though, tends to mean higher frequency.
The point I made earlier in the thread (or tried to make, anyway) is that per trade risk - be it expressed in % or $ terms - should take frequency into consideration because of the way that relates to potential drawdowns (MAE).
thank you all. i’ll just do the normal thing for now. regardless of timeframe e.g. 4h/1h i’ll keep the risk $ per trade the same. and see how i go.
I would say that time-frames influence risk in the way that signals tend to be more reliable on the 4-hour and daily time-frame, compared to the smaller time-frames. That is all very relatively though and must be judged on a case by case basis.
Time frames has nothing with the risk management.
Good ideas to put into practice, very good info and useful.
it depends how you want to calculate risk…
i calculate my risk based on my stop loss, so no mater the time frame i just adjust the lot size to be appropriate for the trade
Risk is high is Forex trading so it is important that we should have enough trading skills that will lead us to minimize the risk and maximize profit margin and we must decide proper time frame in which we had to trade.
I do agree with Clint’s explanation. Risk management has nothing with the time frames.
Time frames is very important and it depends on us which time frame should we select and small time frame trading is for short term trading while long time frame include long term trading.