Risk 5% per trade and you have a 99% chance of 50% drawdown in next 5 years

[Paulie_5]

Absolutely. Sometimes there are occasions when piling in in the biggest size possible is what you should do. This is usually because of some news.

Didn't Laurie Inman do this when he was just starting out as a trader ?

He listened to Trichet and was very certain there was going to be a shock IR decision...

He wired his entire account into one trade... there was indeed a surprise decision... and he made about 200k in a couple of minutes ...

I could have dreamt that, but I'm pretty sure I read it in an interview.

If you've got the balls and seriously trust your own judgement, that's how you make big money in this game.

Of course you could wipe out just as quickly, but it goes to show there are some people out there doing it and cleaning up ...

I'm not advocating this style of trading and I certainly would never do it.

 

[zuke]

Im surprised and mildly amused by some of the "every trade must risk no more than 1%" arguments and respectfully assume than the majority of proponents havent traded in IB's or in the pits.

No trade is certain, but some are much higher probability than others and these are worth risking whatever is determined by the trader as their comforet level

 

[virtuos0]

You have an opportunity to educate some of us. You obviously think I need it.

And I agree. I hope I never know everything.

So.... your 100% winner please explain what your strategy would be for a 100% winner and what actions you would take.. what is the trade size - 100% or more of account?

So what if it drops 5%
What if it drops 10%
what if it drops 20%

Also just so we understand you a little better... do you trade for a living? Employed or for yourself?


Thanks.

I didn't say I have a strategy for 100% winners, I said that IF you are 100% sure of a trade it is logical to risk 100% of your account. From that you should infer that there is a sliding scale.

To give an example of a 100% certain trade. Suppose you plant a massive bomb somewhere significant, for example the Houses of Parliament, this bomb will explode during PMQ's for example and kill all our MP's. You are across the street observing this from a safe vantage point. As soon as you observe that the device has detonated you contact your friend who shorts the FTSE or whatever instrument he deems most profitable . You would have shorted before this news could possibly have reached the markets, which now WILL fall.

This idea isn't without precedent, because I undertand that some indices were shorted by Bin Laden's loonies before 9/11 happened.

Then you can go down through all levels of certainty, you might consider an insider trade as a 98% probability, an obvious news event as a 90% certainty. Clearly as pointed out by Paul71 no event or trade has the same probabilty for everyone trading it, it can only be measured from an individual perspective depending on your information, knowledge and experience.

Yes I trade for a living, for myself.

 

[HawkTrader]

To give an example of a 100% certain trade. Suppose you plant a massive bomb somewhere significant, for example the Houses of Parliament, this bomb will explode during PMQ's for example and kill all our MP's. You are across the street observing this from a safe vantage point. As soon as you observe that the device has detonated you contact your friend who shorts the FTSE or whatever instrument he deems most profitable . You would have shorted before this news could possibly have reached the markets, which now WILL fall.

To be honest I think if a bomb went off in Parliament killing all our MP's right now, the FTSE would rise. :whistling

 

[Sharksharky]

As far as the black swan argument goes, these incidents don't necessarily create problems for short term traders whose strategies allow them to exit the market easily. When the Swiss franc crash happened, the franc did not violently gap down. Its previous close was 1.0187 to the dollar, and the open for the crash day was 1.0189. It even went up to 1.0221 on that day, so there were plenty of exit opportunities for traders if you were using a short-term timeframe. Also, if you look at Black Monday, before the big crash happened on October 19,1987, US markets had been falling since October 14. Its the "long term" traders who get caught up in these Black-Swan events, the nimble short term traders can easily get in and get out. So taking these things into consideration when you calculate % risk for a day trader is irrelevant in my opinion.