## Beginners should risk only 0.25 % per trade

This is a discussion on Beginners should risk only 0.25 % per trade within the First Steps forums, part of the Reception category; We should all know the 2% rule. Devised by Dr Alex Elder. Says capital risked per trade should be not ...

 The following members like this post: StmChris
Aug 13, 2017, 2:16pm   #2

Joined Jul 2017
Quote:
Just a few pointers, because I have spend time researching this...

2% is absolutely arbitrary number, every trader should run betting size optimizations to find what is going to work best for his trading strategy (maximizing profits is the ultimate goal) - good stating point is the Kelly formula.

If you are using % for risk management, you'll never run out of money, because the amount will go down as your account goes down as well, so the following statement is not correct:

"If a novice risks 2% per trade ,40 losses will amount to 80% of account."

The novice trader should not trade live money at all until he has a robust trading strategy, do all the experiments and modelling with back testing once you have everything ready then you'll can start trading (and this will give you the confidence and take care of all mental mambo jumbo, the novice traders are so concerned about... )
__________________
"If you don't find a way to make money while you sleep, you will work until you die." Warren Buffett, CEO of Berkshire Hathaway.

Count de Money number 1 trading rule: EDUCATE YOURSELF!

Before you trade even single penny on the stock market, please spend the time and educate yourself by back testing different trading strategies and ideas - go to eBay and search for "historical stock market data", you can buy 20 years of data for less than \$100 - that's all you need to start.

Aug 13, 2017, 2:20pm   #3
Joined Apr 2017
Quote:
 Originally Posted by Quantt If you are using % for risk management, you'll never run out of money, because the amount will go down as your account goes down as well, so the following statement is not correct: "If a novice risks 2% per trade ,40 losses will amount to 80% of account."
I know this , it gives a rough idea of losses .

Aug 13, 2017, 3:32pm   #4

Joined Jul 2017
Quote:
 Originally Posted by foroom lluzers I know this , it gives a rough idea of losses .
Hey man, sorry, my statement didn't came out as intended, I just wanted to clarify few point on your great post - hope the new traders will read it and most importantly think about it, before putting (losing) money on the line... Cheers!
__________________
"If you don't find a way to make money while you sleep, you will work until you die." Warren Buffett, CEO of Berkshire Hathaway.

Count de Money number 1 trading rule: EDUCATE YOURSELF!

Before you trade even single penny on the stock market, please spend the time and educate yourself by back testing different trading strategies and ideas - go to eBay and search for "historical stock market data", you can buy 20 years of data for less than \$100 - that's all you need to start.

Aug 13, 2017, 4:36pm   #5
Joined Jul 2015
Quote:
 Originally Posted by foroom lluzers I know this , it gives a rough idea of losses .
If ~65% (the actual drawdown for your scenario) was even remotely close to 80%, I would be a millionaire by now. I agree with the intent of your post, but really even the 0.5% is completely arbitrary and not useful in my opinion. The amount you risk should in my opinion depend on factors including:

- How confident you are in your system --> should be based on backtesting and subsequent preliminary live testing.

- How much the market can accept without destroying the intent of your system. --> It is useless to size your position for an arbitrary risk value if your initial live results suggest that a certain size position reduces the strategy effectiveness. This is quite difficult to assess, but the very act of putting yourself into the market alters your strategy slightly. The point is to size your position to make this alteration insignificant. For example, it probably doesn't make sense to try and push a 1500 limit order through when the bid and ask volume is at 100 each.

- The frequency you make trades. If you make 20 trades a day, risking even 0.5% each trade may be foolish as that essentially puts ~9.5% of your account at risk each day.

- The size of your account and how much of it you can lose without impacting you. I typically only risk 0.25% or less per trade on untested systems. Really the size is determined from the expected drawdown of the system from backtests and the percent of my account I am ok with risking on the expected drawdown. So different systems may have different values.

As you can see, in my opinion there is no one magic number.
-

 Aug 13, 2017, 5:13pm #6 Joined Nov 2003 More important than what you believe you're risking is your size imo. A trader could be long dax with a stop at -10pts / -1% of their acc, XYZ occurs and the stop gets yumped and filled at -150 / -15%. __________________ Me and you, we is largely the same bruv! We dont know shît! The difference is, I know I dont know shît!!
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 Aug 13, 2017, 5:28pm #7 Joined Sep 2014 Always hedge it with pork bellies. if you really drop a large bollock just hide it like F/L You can then make 10 here and 5 there and hide ya 200 tic loss
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 Aug 13, 2017, 5:35pm #8 Joined Apr 2016 Actually foroom has stopped hiding his loss. He shows the loss and then calls it a win.
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Aug 13, 2017, 5:57pm   #9
Joined Apr 2017
Quote:
 Originally Posted by EnlightenedJoe Actually foroom has stopped hiding his loss. He shows the loss and then calls it a win.

Aug 13, 2017, 6:01pm   #10
Joined Apr 2016
Quote:
 Originally Posted by foroom lluzers where is evidence for new traders to confirm your purported claims?

Aug 13, 2017, 6:11pm   #11
Joined Apr 2017
Quote:
how does the post of a forum plank count as evidence?

 Aug 13, 2017, 7:16pm #13 Joined Apr 2017 liquid validity used to trade 99 % per trade , he disappeared from foruns.
Aug 13, 2017, 7:31pm   #14

Joined Nov 2003
Quote:
 Originally Posted by itspossible
I think i might have to get me one o them
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Me and you, we is largely the same bruv! We dont know shît! The difference is, I know I dont know shît!!

Aug 13, 2017, 8:19pm   #15
Joined Apr 2016
Quote:
 Originally Posted by foroom lluzers liquid validity used to trade 99 % per trade , he disappeared from foruns.
I am curious what happened to New Trader. He's more your kind of guy and believed in the misinformation.