Why only 1% Capital Risk when trading

This is a discussion on Why only 1% Capital Risk when trading within the Psychology, Risk & Money Management forums, part of the Methods category; Originally Posted by TheBramble Gradeon, look at it like this. How many positions would you need to have open at ...

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Old Jan 13, 2005, 8:51pm   #25
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Quote:
Originally Posted by TheBramble
Gradeon, look at it like this.

How many positions would you need to have open at any one time, for a flock of Black Swans to sail into view (as per $60 to $10 example given above) for you to wish your exposure had been lower?

I'm not trying to be deep, but everyone's risk profile and comfort level is different. I never have more than 10% in the market at any one time and my risk per trade is normally WAY less than 1% which is my absolute MAX.
I consider I am VERY risk averse. But I didn't start that way...
Tony,10% of your total unmargined capital? just wish to get any info clear here, free, rather than the expensive fees the Markets charge. Could probably push to a beer.

Black Swans, one would be dreadful, two....oh dear! , get your point.
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Old Jan 13, 2005, 8:57pm   #26
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Originally Posted by Salty Gibbon
Is the risk any less with things like QQQQ and SPY ?
In Keeping with asking stupid questions here, rather than them Lovely Smiling, Friendly Chaps at the Brokers. What are all the Q's and Undercover agents all about?

Gary
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Old Jan 13, 2005, 9:09pm   #27
 
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QQQQ is the Nasdaq-100 Trust 1 QQQQ Price: $38.44 -0.14 -0.36% Vol: 62,260,600 2:53 PM ET 1/13/2005

The Fund seeks to provide investment results that generally correspond to the price and yield performance of the component securities of the Nasdaq-100 Index.


SPY is the SPDR Trust;1 SPY Price: $118.51 -0.06 -0.05% Vol: 31,792,400 2:49 PM ET 1/13/2005

The Trust seeks invest results that, before expenses, generally correspond to the price and yield performance of the component common stocks of the S&P 500 Index.
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Old Jan 13, 2005, 9:12pm   #28
 
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I'm not trying to be deep, but everyone's risk profile and comfort level is different. I never have more than 10% in the market at any one time and my risk per trade is normally WAY less than 1% which is my absolute MAX.
Unless I have misunderstood you Tony you must either trade exceedingly small size or else you have an enormous trading pot of dosh.
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Old Jan 13, 2005, 9:14pm   #29
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Originally Posted by Salty Gibbon
QQQQ is the Nasdaq-100 Trust 1 QQQQ Price: $38.44 -0.14 -0.36% Vol: 62,260,600 2:53 PM ET 1/13/2005

The Fund seeks to provide investment results that generally correspond to the price and yield performance of the component securities of the Nasdaq-100 Index.


SPY is the SPDR Trust;1 SPY Price: $118.51 -0.06 -0.05% Vol: 31,792,400 2:49 PM ET 1/13/2005

The Trust seeks invest results that, before expenses, generally correspond to the price and yield performance of the component common stocks of the S&P 500 Index.
Thanks Salty thought YOU where going mad there for a moment....Phew!
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Old Jan 13, 2005, 9:19pm   #30
 
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I can't go mad.

I am already there.
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Old Jan 13, 2005, 9:38pm   #31
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Re TheBrewsters

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Originally Posted by Salty Gibbon
Unless I have misunderstood you Tony you must either trade exceedingly small size or else you have an enormous trading pot of dosh.
Salty, I heard on the grape vine that Bramble is well Brewstered.

Them sweet dogs are just a facade to make us think he's a nice country boy. Well it doesn't wash, get the bar Bramble.
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Old Jan 14, 2005, 12:20am   #32
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Originally Posted by Salty Gibbon
Unless I have misunderstood you Tony you must either trade exceedingly small size or else you have an enormous trading pot of dosh.
I don't think you misunderstood me Salty. I wont get washed out of the market unless 10 consecutive 9/11s happen and I'm fully into the market on each one.

Let's take a hypothetical example.

Say you have a trading pot of $1M.

I have a max risk of 1% risk per trade and 10% exposure at any one time over all open positions.

Risk is my stop+costs+slippage.

Exposure is what would happen 9/11 - but expectation of being absolutely totalled on the trade rather than just suffering a severe mauling.

Say I've got a nice long setup on a $25 stock with an estimated Risk of 20c (which is pretty typical).

In theory I could trade 50,000 shares (1% of $1M = $10K) / 0.20 (risk) = 50,000 shares. (yep, get that filled in one go - I'll watch )

My exposure would be 50,000 X $25 = $1.25M....oops...I only want to take out 10% of my pot so I downsize. My total exposure on this trade (assuming I want to got full throttle on this one and not have any juice left for other positions) is $100,000 = 4000 shares.

You'd think it would be a lot easier to just go straight to the (total cap X 10%) / stock-price to calculate my position size, but I still always work from my risk side first. Primarily because (a) I don't like anything more than 35c risk and (b) I need to measure my Risk against my target Reward.

Also, if LII is showing bad depth or 'lumpy' strata or the bid/offer spread is wider than it 'should' be...I'll pass.

So yeah, very Risk averse and unlikely to ever be out of the market (again), but at any point in time, I'm sure, my brother and sister traders will be making tons more than me. But they wont be the same brother and sister traders a couple of years down the line...
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