2% stop loss rule

[brettus]

I can understand why but wouldnt shrinking the risk be counter productive assuming R:R are related, you wont be using the extra capital?

To be honest. It all depends on your capital. Risking 5% on 100$ isnt gonna break the bank most of the time and for a bit of experience is ok. To be honest i dont risk more than 0.5% most of the time, because i trade enough to make enough gains over the course of the year.

 

[olionion]

Yeah i agree in that respect i consistently only risk 0.5 % but what i wouldnt do is have a succesfull strategy working with a risk of 0.5% and then reduce it down, it seems like all the effort in making that extra capital wont then be compounded further because you are not increasing your position sizes, so from a business pov you would see less return on capital employed i think.

 

[DashRiprock]

Yeah i agree in that respect i consistently only risk 0.5 % but what i wouldnt do is have a succesfull strategy working with a risk of 0.5% and then reduce it down, it seems like all the effort in making that extra capital wont then be compounded further because you are not increasing your position sizes, so from a business pov you would see less return on capital employed i think.

h olionion

yes you are right about less return on capital but also there are other things like the psychology of having big money losses even though its same of account... one of the older traders that has helped me in my trading said "the bigger your account gets, the more it becomes about keeping it and the less it becomes about making it".

 

[Black Swan]

Dash, who *were you*?

 

[DashRiprock]

Dash, who *were you*?

hi Black Swan

sorry but i dont get it?

:?:

 

[olionion]

h olionion

yes you are right about less return on capital but also there are other things like the psychology of having big money losses even though its same of account... one of the older traders that has helped me in my trading said "the bigger your account gets, the more it becomes about keeping it and the less it becomes about making it".

Yeah fair point i guess i havent got to that point yet :clover:

 

[brettus]

Yeah i agree in that respect i consistently only risk 0.5 % but what i wouldnt do is have a succesfull strategy working with a risk of 0.5% and then reduce it down, it seems like all the effort in making that extra capital wont then be compounded further because you are not increasing your position sizes, so from a business pov you would see less return on capital employed i think.

That's true, but i trade discretionary and psychologically im happy with 0.5%. True i could scale up, but then emotionally i wont be happy. As long as my balance grows, i'm happy. i can make 50% in a year still.

 

[Blaiserboy]

That's true, but i trade discretionary and psychologically im happy with 0.5%. True i could scale up, but then emotionally i wont be happy. As long as my balance grows, i'm happy. i can make 50% in a year still.

I like this approach.....!!

In my beginning days I made some terrible errors..... yer basic account depletion type errors..., coz I knew I could make it back by increasing the risk......lol

 

[olionion]

That's true, but i trade discretionary and psychologically im happy with 0.5%. True i could scale up, but then emotionally i wont be happy. As long as my balance grows, i'm happy. i can make 50% in a year still.

Hi, i think we are saying the same thing. I wouldnt recommend scaling up either, just find a level of risk that enables you to deal with the variance/draw down on your style, i just would try and avoid scaling down as i want to compound my growth, my % risk would remain consistent.

But as mentioned 0.5% of 1k is alot different to most people than 0.5% of 100k (even though your plan may not care), most people would be happy to maintain the ££££s and live the life of riley, me too i suspect if i ever get the chance.

 

[Black Swan]

hi Black Swan

sorry but i dont get it?

:?:

The last time you posted on T2W what name did you use?

 

[DashRiprock]

DashRiprock

 

[tdrtw]

At some point I would gather the goal would be to live off it. Say with a lifestyle of $100,000 per year. It would be much more preferable to make 20% per year off 1,000,000 (taxes plus a little to put back in for capital growth), than 100% gain in a 200,000 account. Much less stress and pressure to "make it". So decreasing risk over time with capital growth would be desirable. Draw downs by % of capital would be a lot smaller. In the end each person is different and would do differnt things (aka now I'm sure this trade would win, lets put the whole account on there and double it then walk away... i got a good feeling about this! haha)

 

[Black Swan]

DashRiprock

You've never posted using a different user-name on T2W?

 

[DashRiprock]

You've never posted using a different user-name on T2W?

no i have never written on another website even!

i watch elitetrader because there are some very good traders there that are trading bonds and things like i do but also alot of haters and stupid americans

i sometimes watch forexfactory and there is some good trading there to but alot of "PASR is the best" which annoys me and as well stupid people that talk about hedging eurusd with usdjpy and things like that.

do you go to those blogs? maybe their is a DashRiprock there as well?

 

[wackypete2]

The last time you posted on T2W what name did you use?

DashRiprock

LMAO!
Well, technically, that IS the right answer!

Peter

 

[ZurichTrader]

My approach to stops is very similar to DashRiprock's. This is especially the case for anyone trading with discretion/judgement. There is a money management stop which I call a disaster stop which limits losses to a % of capital and then there is the actual stop that tells you that you want to be out because the reasoning for the trade is no longer valid.

I find when I trade multiple markets that making individual calculations for each trade is counter-productive and uses a lot of time that can be used for analysis and trading decisions. I prefer to set parameters for each instrument type and then derive a standard position size for each instrument based on the trading timeframe.

US stocks (swing trades) have a certain standard size and disaster stop then the individual trades and hence the actual stops are managed based on how trades develop.

Intraday indices have another standard size and disaster stop - size being bigger and stop being closer due to the lower trading timeframe.

Forex is swing trade and handled like US stocks but with it's own parameters.

Commodities also swing trade with specific sizes and disaster stops.

The key point with stops is that my system (judgement and technical tools) tells me where they should be - they are derived from the market. It also tells me when I am wrong and that can be miles before the disaster stop - I am still wrong so I need to look for an exit!

As an aside, the chart usually tells me where other traders have their stops as well and that information is very valuable. Mine don't usually go in the same place.

Turned into a bit of a ramble this post has!
Jason

 

[olionion]

Hi Zurich, i guess i differ in this approach in that depending on where i put my stop will determine how big my position is, i dont have a pre determined position size. I will skip a trade if the best place i see for a stop is too far away and means i dont believe i can hit a decent R:R ratio on the trade, my profit relates to my risk not my position size. I do have a minimum size though where i feel that trade overheads are taking too much of a slice out of the profit or adding too much to the risk so that would be another reason to skip a trade and also if the position size is too big and takes me beyond how much exposure i want in any given sector or from the accounts overall.

 

[ZurichTrader]

olionion,

I do adjust position size when there is a clear indication that I can do so - so if my market based stop makes the risk clearly much smaller on a standard position "lot" then I will increase this in whole "lots". If the calculation isn't obvious and covered by a quick mental tot-up I don't do it though.

Because I trade so much with judgement there will always be times where I am either side of a mean risk level but the overall risk is acceptable.

I think also the point I was trying to make above but didn't actually say it is that there is a bit of legwork in the preparation but the actual process during trading is simple and simple is good.

 

[ZurichTrader]

olionion,

I do adjust position size when there is a clear indication that I can do so - so if my market based stop makes the risk clearly much smaller on a standard position "lot" then I will increase this in whole "lots". If the calculation isn't obvious and covered by a quick mental tot-up I don't do it though.

Because I trade so much with judgement there will always be times where I am either side of a mean risk level but the overall risk is acceptable.

I think also the point I was trying to make above but didn't actually say it is that there is a bit of legwork in the preparation but the actual process during trading is simple and simple is good.

 

[meanreversion]

Yes, that seems quite reasonable. I just think that it sends the wrong message to new traders to simply say "place a stop such that no more than 2% of your account is at risk". I agree with the logic that you shouldn't let one trade wipe you out, but if traders keep following that rule alone, it will wipe them out eventually.

Stops should be determined logically. For example if a stock is trending up with each candle making higher highs and higher lows, then placing a stop below the opposite end of the previous candle is logical because if this area is penetrated, then the trend is also likely finished. Once you determine the correct stop area, position size should be adjusted to match the risk capacity.

This seems confused. Why is betting 2% of equity each time going to wipe you out?

Your second paragraph seems to agree with a fixed percentage bet size?