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

[north5]

All look like good entries to me. Full Action/Reaction/Action seemed to have played out. Confirmation of bottoms look pretty good. They will take time to play out - but that is the point isn't it. Was it Buffet who said something along the lines of 'the market is a way of distributing income from the impatient to the patient'?

Anyway - don't like to make live calls on the internet as people will misconstrue them but I think the EUR/USD is setting up nicely for reversal so I'm finally going long with it at market open. Normally like to see a double bottom but I think the uncertainty has been removed with interest rate moves so we unlikely to get one IMO.

I'm off to bed in a minute - some of us do sleep!

 

[Paul71]

It's the trader that makes the business all consuming not the strategy or the timeframe.

No. It's the trader who capitalises on what he is best at. But, i guess that's the paradox,...i haven't got it yet, one day i may, i hope.

 

[north5]

Before I go to bed - can I just say that I hope this thread has some value to the OP and has not just confused the matter further.

 

[new_trader]

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.

For me it is Number 2 but it is not strictly based on % of capital.

Without going into deep details I explained that efficient traders use very tight stops because efficient traders get it right many many more times than they get it wrong, that is why they are efficient traders, OK ?

Therefore efficient traders are surprised and shocked when they get it wrong. The fact that they use very tight stops immediately limits losses.

Inefficient traders are apt to use wide stops and some blighters none at all !
They now begin to argue, yes argue, that to use a wide stop is the right thing to do because it allows a position to "breathe" and other nonsenses. When it is pointed out that wide stops used by inefficient traders who get it wrong often and really ought to fiercely control losses, they get abusive, or, begin to argue.


I only look in my ledger to see what the balances are and in what denominations. I do not look at it to work out win / loss, etc., because of the risk of gloating, which is a disastrous emotion, as it renders the trader emotionally charged which is very dangerous as it has a tendency to induce serial trading which is excessive trading most commonly motivated by greed. Being motivated by anything other than being right, absolutely right and then under strict self governance is a recipe for absolute disaster.


One starts at the beginning and finishes at the end. You cannot start at these levels when you are a beginner. It is a matter of refining and reviewing and of self mastery through adversity by sheer dint of will. But anyone who aspires to evantually overcome can do it, it is a matter of determination and focus, and of a burning desire to succeed.


The single most important thing you have to concentrate on is limiting losses.
You do this by using stops.

As you become more procicient at picking winning moves you have to tighten your stop loss policy.

Limiting losses to the absolute minimum is the key. All else is peripheral.

Now that is a simple statement.

If everyone did this, everyone would survive long enough to eventually become proficient.

But very few have the self discipline to persist in this way.

I strongly suggest you follow the lead I have just given you.

 

[MktScape]

Hi Guys,
Thanks for all the input on my question. I wanted to particiapte actively however last week my computer got infected with some freakin DNS hijack virus. I was trying to fix it for the whole week but it was of no avail. All my time got wasted. Just today, in my office, I tried to search for a clue as to how to fix the nasty pest I came to know that it has actually hijacked my wireless router therefore whatever I do no matter how many scan I run will not help. BEcuase it is not in my computer its in the router. Now I'll go home in the evening and will try to fix it again and will go through all the replys as well. I am just writing this reply just to let the community know what the heck happened.
I am in my office so cant spend much time. Howeve, I'll check back as soon as the problem is fixed.

Once again thanks for all the input.

 

[JTrader]

Not a lotto. 1-2% of account balance max!

 

[Paul71]

For me it is Number 2 but it is not strictly based on % of capital.

Hi NT.

That post of Soccos is absolute quality. Thanks for digging it out.

 

[gooseman]

if it's the right trade-all of it.

 

[StockHunter]

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.

Depends on your startegy, for daytrading stocks I always use 100% of my capital in every trade. I also do not enter a trade if my stoploss is over 1.50%-2%. But like I said it all depends on your strategy(ies).

 

[forker]

it got nothing to do with your strategy.. unless you have at leat 3 months consistent results its not even worth risking a cent. until you can prove to yourself that you are able to consistently make profits, all you are really doing is trying to tweak how much you should trade thinking that if it's the right level you can buffer the losers and change your luck into a growing your account. all of that is ******** because unless you have consistent profits no matter how much you tweak your risk all you are tweaking is the length of time it will take to blow your account. now once you realise this you might do the right thing and paper trade until you get at least 3 months straight of profits.. then you can think about starting with 0.5% risk and slowly work your way up to 1% at a rate of .1% a month increase but only if that month was profitable.

 

[StockHunter]

I disagree with changing your risk all the time. I use paper-trading when I'm testing that way everything is consistent in my results. However, I never say anything is wrong because that way of doing things prob works for you, just not for me.

 

[MktScape]

Hello Everyone,
Today I finally got a chance to go through all the replies (as my computer was hit by a worm) and was trying to comprehend the message from experienced traders on my question of position sizing and how much to risk. Here is what I've understood, please correct me if i am wrong:
Some traders (depending on their trading style) may risk a larger % of total trading capital on a single trade however they would ensure that they don’t risk 1-2 or 3% of the capital, depending on the risk tolerance, on a single trade and traders do this using the stop loss and it is important to paper trade first and be consistently profitable before using the real money.


Taking about stop loss I read that using ATR based stop loss would be logical way to deploy astop loss point and it would prevent the trader from being stopped put of a trade just becuase of the usualy price volitility. Do you guys use this method? Any word of caution on using this method.
Can this method result in a larger loss then one's risk tolerence of 1-2% of trading capital?

 

[StockHunter]

Hello Everyone,
Today I finally got a chance to go through all the replies (as my computer was hit by a worm) and twas rying to comprehend the message from experience trader on my question of position sizing and how much to risk. Here is what I've understood, please correct me if i am wrong:
Some traders (depending on their trading style) may risk a larger % of total trading capital on a single trade however they would ensure that they don’t risk 1-2 or 3% of the capital, depending on the risk tolerance, on a single trade and traders do this using the stop loss and it is important to paper trade first and be consistently profitable before using the real money.


Taking about stop loss I read that using ATR based stop loss would be logical way to deploy astop loss point and it would prevent the trader from being stopped put of a trade just becuase of the usualy price volitility. Do you guys use this method? Any word of caution on using this method.
Can this method result in a larger loss then one's risk tolerence of 1-2% of trading capital?

Correct! When it comes to stoplosses I do them manually (I don't follow that method), but this is easier for me to do because I'm only in 1-2 trades at one time and I daytrade them so I'm out by the close. I base my stoplosses off of resistance/support, and when I'm running a trailing stoploss I will start at resistance/support then go off of recent candle highs/lows as the price moves.