A questions about "How much to risk on a single trade"

[MktScape]

Hi All,
I am new to this forum and to trading as well. I am trying to understand some key trading concepts. My question is about how much to risk on a single trade. Does this mean:
1) What % of the total trade capital will be used in buying the stock in question or
2) What % one is willing to loose in a single trade based on the stop loss

Thanks in advance.

 

[Lee Shepherd]

Hi mate,

Have a good look around the site, there are many different percentages one can use depending on risk appetite and the strategy you are using.

You will find many gems by looking around yourself and navigating through the pages so I wont spoil your research by directing you straight to just one answer when there are many to this question and much more to discover when browsing.

There are general rules of thumb answers but again, totally depends on the level of risk and the results of your strat.

Enjoy the site, theres much information that can help you with things you didn't realise you didn't know.

 

[MktScape]

Thanks for your prompt reply Lee. I'll try to find the info on the forum.

Hi mate,

Have a good look around the site, there are many different percentages one can use depending on risk appetite and the strategy you are using.

You will find many gems by looking around yourself and navigating through the pages so I wont spoil your research by directing you straight to just one answer when there are many to this question and much more to discover when browsing.

There are general rules of thumb answers but again, totally depends on the level of risk and the results of your strat.

Enjoy the site, theres much information that can help you with things you didn't realise you didn't know.

 

[trader_dante]

Hi All,
I am new to this forum and to trading as well. I am trying to understand some key trading concepts. My question is about how much to risk on a single trade. Does this mean:
1) What % of the total trade capital will be used in buying the stock in question or
2) What % one is willing to loose in a single trade based on the stop loss

Thanks in advance.

My personal answer to this is try to get 100% of your total trade capital into a single trade whilst never risking more than 5% per trade. This is the holy grail but it's very hard to achieve. I've done it only once in the last two years.

I'm a swing trader.

 

[MktScape]

My personal answer to this is try to get 100% of your total trade capital into a single trade whilst never risking more than 5% per trade. This is the holy grail but it's very hard to achieve. I've done it only once in the last two years.

I'm a swing trader.

Thanks for your input.
I was thinking on the same lines as well, but as you can see I was not very sure (since i dont have practical experience in trading). Just a little clarification here about what you said. You mean that a trader can use a larger potion of the capital in a single trade however he/she should limit the loss using stop losses?
I am asking this because I've read that onve should never use more that 5% of capital on a single trade (depending on the risk tolerence). What i was thinking is if some one is starting with a smaller capital base say $10,000 then 5% of $10,000 is nothing and I guess if one uses 5% of capital per trade (especially when trading more stable stock >$30) the it will take forever and a half to see some positive results.

Also, when you say "This is the holy grail but it's very hard to achieve. I've done it only once in the last two years. " do you mean you were able to achieve a 5% risk per trade only once othehrwise it is higher.?

Here I wouldn want to say that I am trying to understand position sizing using the MM Caculator and i seem to like Fixed Percent Model and I believe it based on the same thinking. Any word on this?

 

[trader_dante]

Thanks for your input.
I was thinking on the same lines as well, but as you can see I was not very sure (since i dont have practical experience in trading). Just a little clarification here about what you said. You mean that a trader can use a larger potion of the capital in a single trade however he/she should limit the loss using stop losses?
I am asking this because I've read that onve should never use more that 5% of capital on a single trade (depending on the risk tolerence). What i was thinking is if some one is starting with a smaller capital base say $10,000 then 5% of $10,000 is nothing and I guess if one uses 5% of capital per trade (especially when trading more stable stock >$30) the it will take forever and a half to see some positive results.

Also, when you say "This is the holy grail but it's very hard to achieve. I've done it only once in the last two years. " do you mean you were able to achieve a 5% risk per trade only once othehrwise it is higher.?

What I mean is that you want to try and have every single penny you own committed to a trade but make sure that if you get stopped out you only lose 5% of your total capital.

For example, if you were trading something like the Euro, you might take a position with a stop loss attached. Now if that stop loss was hit you would only lose 5% of your capital. However, if the market moved in your favour you would keep increasing your position but making sure that as your stop moved up, your risk could never increase beyond that intial 5% you took. As you add more and more you can eventually have 100% of your total capital on the line and then still add more on margin and still your risk is staying the same as when you first took the trade (5%) or sometimes even DECREASING.

There was an example in Wheat last year where you could have started off with 5% risk of a $10,000 account ($500) and without your risk ever increasing, built your position up so that the eventual payoff when you were stopped out was well over $4 million from your initial $500 risk.

Just find a trend and keep adding.

 

[N Rothschild]

surely you would eventually run out of capital for maintenance margin and the initial?

What I mean is that you want to try and have every single penny you own committed to a trade but make sure that if you get stopped out you only lose 5% of your total capital.

For example, if you were trading something like the Euro, you might take a position with a stop loss attached. Now if that stop loss was hit you would only lose 5% of your capital. However, if the market moved in your favour you would keep increasing your position but making sure that as your stop moved up, your risk could never increase beyond that intial 5% you took. As you add more and more you can eventually have 100% of your total capital on the line and then still add more on margin and still your risk is staying the same as when you first took the trade (5%) or sometimes even DECREASING.

There was an example in Wheat last year where you could have started off with 5% risk of a $10,000 account ($500) and without your risk ever increasing, built your position up so that the eventual payoff when you were stopped out was well over $4 million from your initial $500 risk.

Just find a trend and keep adding.

 

[trader_dante]

surely you would eventually run out of capital for maintenance margin and the initial?

Not if you are allowed to trade on margin that is calculated by using the equity from your open positions. Some spreadbetting firms, for example allow this.

Victor Niederhoffer turned $40,000 into $22,000,000 in ONE trade doing just this.

He had one position in Gold that he kept adding to using the margin from his open positions.

 

[N Rothschild]

do you spread bet at the arcade?

 

[north5]

Agree 100% with trade_dante - however if you are new then this can be a very easy way to lose a profit quickly - and even trash your account. You must have a clear plan that you can execute to be able to pyramid like this without turning the trade into a nightmare that will prey on your personal foibles.

 

[north5]

I would also add that you should look at ATR for the time period you trade so that you can balance the risk of each trade across the different markets you trade.

 

[Paul71]

Not if you are allowed to trade on margin that is calculated by using the equity from your open positions. Some spreadbetting firms, for example allow this.

Victor Niederhoffer turned $40,000 into $22,000,000 in ONE trade doing just this.

He had one position in Gold that he kept adding to using the margin from his open positions.

So Vic run the gold contract and compounded it, you show me an ongoing compounding contract on t2w bud, and i'll show you my backside. Maybe it's the new standard, in replace of stops and measley targets?

 

[trader_dante]

So Vic run the gold contract and compounded it, you show me an ongoing compounding contract on t2w bud, and i'll show you my backside.

What are you talking about?

Maybe it's the new standard, in replace of stops and measley targets?

It will never be the standard. It requires balls and not many have them.

 

[Paul71]

What are you talking about?



It will never be the standard. It requires balls and not many have them.

Glad i've got your attention, TD.


Requires balls? You'll have to explain, TD.

 

[trader_dante]

Glad i've got your attention, TD.


Requires balls? You'll have to explain, TD.

Sometimes you have to be prepared to give a huge deal of profit back to capture the big moves.

If you want to see how it can be done go back and look at the potential pyramid points (price action including pin bars and inside bars at pullbacks to s/r in the trend or on breakouts of continuation flags) on Wheat in the run up from the March '07 lows to the Sep/Oct '07 highs.

I just did the calculations. If you were prepared to play with the houses money every step of the way until the top you could have turned a £2m profit without ever risking more than the intial £500.

Weekly chart shows an incredible entry.

Daily charts shows additions.

 

[Paul71]

Sometimes you have to be prepared to give a huge deal of profit back to capture the big moves.

If you want to see how it can be done go back and look at the potential pyramid points (price action at pullbacks in the trend) on Wheat in the run up from the March '07 lows to the Sep/Oct '07 highs. I just did the calculations. If you were prepared to play with the houses money every step of the way until the top you could have turned a £500 risk into over £2m profit.

Infact you could have done the same thing all the way down too...

Did you? It's no good spouting off about another mans trials and tribulations, you have to be able to match what you are commenting about,....can you match Vics record?

Probably not.

Reason,...it takes balls and risk, balls and risk you could not even consider.

So why even bother quoting Vics achievements?

 

[UKtradergirl]

Sometimes you have to be prepared to give a huge deal of profit back to capture the big moves.

If you want to see how it can be done go back and look at the potential pyramid points (price action including pin bars and inside bars at pullbacks to s/r in the trend or on breakouts of continuation flags) on Wheat in the run up from the March '07 lows to the Sep/Oct '07 highs.

I just did the calculations. If you were prepared to play with the houses money every step of the way until the top you could have turned a £2m profit without ever risking more than the intial £500.

Weekly chart shows an incredible entry.

Daily charts shows additions.

One trade a year like this would do me . No... one every two years would be fine actually .

I know adding to a profitable position is a good way to go, but every time i try this i always end up losing out... closing my positions at break-even point (part of the position in profit, the other part in loss). If i had just kept the original position and not added i would have had a profit. The psychology of this is hard to overcome.

 

[trader_dante]

Did you? It's no good spouting off about another mans trials and tribulations, you have to be able to match what you are commenting about,....can you match Vics record?

Probably not.

Reason,...it takes balls and risk, balls and risk you could not even consider.

So why even bother quoting Vics achievements?

Actually I DID add on the way up. Not to the same extent but I did pretty well out of it none the less.

Don't talk to me about balls and risk mate, you have no idea about how I trade.

Whose trying to match Vic? As far as I know, he's bankrupt.

I simply quoted Vics achievements to show how adding can produce excellent returns.

WTF is this sh*t you're spouting?

 

[Paul71]

Actually I DID add on the way up. Not to the same extent but I did pretty well out of it none the less.

Don't talk to me about balls and risk mate, you have no idea about how I trade.

Whose trying to match Vic? As far as I know, he's bankrupt.

I simply quoted Vics achievements to show how adding can produce excellent returns.

WTF is this sh*t you're spouting?

Exactly! You are quoting a bankrupt, TD. I knew you would quote "I did", for the best bits,.....don't bother breaking the mould of human nature,....we're all the same.

 

[trader_dante]

Exactly! You are quoting a bankrupt, TD. I knew you would quote "I did", for the best bits,.....don't bother breaking the mould of human nature,....we're all the same.

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