You would probably be interested in googling “Kelly criterion”.
The reason people don’t trade more than 2% is because the emotions of fear and greed easily become unmanageable, is my belief anyway.
Yeah, I’d agree with that.
I don’t know whether trading with 20-25% risk is feasible, but I do know that I’d never try it with my main account, from which I generate my monthly income.
If at all, I’d try it on a ‘[I]fun account[/I]’, funded with a few thousand only … or preferably a few hundred, hehe.
Trading with a double digit risk smacks of gambling rather than doing business to me.
O.
Hi with 2% return is so low not worth the time u put
It’s frustrating to see people just ignore the math posted in this thread. The fact is: 25% its the best risk % for 1:2 risk:reward and 50 win ratio. Why wouldn’t one do this if its the most profitable? Can anyone really answer this? And don’t come with answers like " i wouldn’t do it" , “it’s gambling” , “try it and see it”,please, its getting old. Am i the only one surprised by these results??
Edit: Also i see that Kelly criterion (thanks for suggestion o900l6mh ) also results in 25% risk.
where b =2 and p =50%
Edit: Yunni1, i ran the test again with 50 trades and indeed it says 25% most profitable risk. That being said, i also put in 500 trades and it came back to 25%.
Something must be wrong with the excel.
-
with
30% risk you’d have after 2 trades: New_Balance = Starting_Balance * 0.7 * 1.6 = Starting_balance * 1.12
25% risk you’d have after 2 trades: New_Balance = Starting_Balance * 0.75 * 1.5 = Starting_balance * 1.125Therefore, it’s kinda weird that 30% > 25% in your excel. (1.12 > 1.125)
Math is not my strength…
But here the assumption is that you will hit a 20 win streak (I’ve never done it)
But what if you know the next trade will be a winner?? will you risk 25% or 100%??
I guess MM is about preserving capital, so it depends on your expectations…
If i KNEW the next trade is a winner i’d sell my house, car, yacht, and borrow 10M $ to place it on the trade 
Oh, and yes…100% :))
That is exactly my point… so if you know you will have a 20 win streak why risk only 25%??? and viceversa if you know you will have a 20 losing streak why keep risking 25%??
I do not known the math behind the 25% number of this thread… must be some kind of correlation but is not equal to every number of continuos streaks…
Thanks. I looked up Kelly Criterion on wikipedia and it describes exactly what I calculated.
From Wikipedia:
Reasons to bet less than Kelly
A natural assumption is that taking more risk increases the probability of both very good and very bad outcomes. One of the most important ideas in Kelly is that betting more than the Kelly amount decreases the probability of very good results, while still increasing the probability of very bad results. Since in reality we seldom know the precise probabilities and payoffs, and since overbetting is worse than underbetting, it makes sense to err on the side of caution and bet less than the Kelly amount.
Kelly assumes sequential bets that are independent (later work generalizes to bets that have sufficient independence). That may be a good model for some gambling games, but generally does not apply in investing and other forms of risk-taking.
The Kelly property appears “in the long run” (that is, it is an asymptotic property). To a person, it matters whether the property emerges over a small number or a large number of bets. It makes sense to consider not just the long run, but where losing a bet might leave one in the short and medium term as well. A related point is that Kelly assumes the only important thing is long-term wealth. Most people also care about the path to get there. Kelly betting leads to highly volatile short-term outcomes which many people find unpleasant, even if they believe they will do well in the end.
I wonder why we don’t see more math professors trading? hmmm
Continuous or not doesn’t matter. You can put it in your spreadsheet as Win, Loss, Win, Loss, etc. for 40 trades and it’ll come out the same as 20 consecutive losses followed by 20 consecutive wins. Whatever order you achieve it in doesn’t matter so If you can hit a 50% win rate while risking 25% and can manage a 2:1 R/R then your account will explode over 40 trades. The issue is getting the 2:1 R/R on enough winning trades.
the thing is to get that impressive number in profits (from $47,57 to $105.450,94) you need compounding… only achivable by adding to your capital with a winning streak
“The most powerful force in the universe is compound interest”, Albert Einstein
(I hope I am using the right terminology, english is not my first language)
Yep it’s all about compounding and the nice 2:1 R/R. If I could achieve 50% wins with 2:1 R/R I’d be the King of Undinia and wearing a shiny hat by now.
I think you still don’t understand the point of this thread. You are still stuck on that 20 streaks example. The whole discussion is about the optimal risk percentage for an optimal average return, and not about horror scenarios of 10K$ to 30$ or superhero scenarios of 30$ to 100K$.
How can you be sure to “pull off” those win rates ???
So if you can not control your win rate, then I really don’t know the point of your calculations… and this thread at all
you forgot to include margin. with $31 in your account you would not be able to maintain a trade that risks 25% of your equity, because you won’t have enough margin. correct me if I’m wrong.
0.000009% chance of getting 20 consecutive wins, or 1 in every 1,048,576 tries in a system if you have a system that gets you a 50% win rate.
you can check my math.
2^20 =
ain’t a whole lot of checking to do…
what’s your point though?