Gardan's 'How Much to risk per trade' poll

[ducati998]

R/T,
I would not have a stoploss. As previously detailed, market risk is not a factor within my risk management.
To clarify this point with a brief example, if the company I am investing in has already declared Chap11, I am looking to profit from the restructuring. The company may well no longer be trading on the exchange, if it ever was, and "MARKET RISK" does not exist.

KMart, was a very recent real life example. The funded debt at one point sold for $0.15 in the dollar. Purchased at these prices, the land assets alone covered the price by many multiples, even if you valued the business at zero.
The restructuring was completed for myself in slightly less than 1 year, returning 85%, gross. This to me represented a very safe investment.

Just to address the point that you were making about the daytrading example of the DJI. I am assuming that you are talking about a daytrade rather than a position trade with an indefinite holding period......and it is this, for the assumption of risk, and however you define and manage that risk, the other side of the equation must be your potential reward. Now, if you are daytrading the DJI, are you are doing so to limit the individual stock suspension risk, as the % move in an index on a days basis, assuming you catch the entire move, is low. Therefore your R/R ratio would be somewhere in the order of 1:1 or slightly higher?
Given that your expectancy is around 50%, is it any wonder that daytraders are a limited breed?

As others have detailed, due to "adverse" news destroying their position, very few are willing to carry a large position (relative to themselves) over a longer period of time. Yet it is precisely the way to reach serious profitability.

Cheers d998

 

[Tuffty]

What percentage risk, per trade, is sensible?

I voted at less than 1% for individual trades. However, I am happy to risk 5% on one idea or investment. I manage total risk so that if a disaster strikes (by my making or one of those big fat tails that closes an exchange where I have an open position so I can't get out) it won't affect my life style.

My 1% and 5% ignores property assets, if they drop 99% it shouldn't affect my life style unless I get mugged by all those homeless people when I leave the premises.

 

[roguetrader]

Hi d998,
Ok I see what you are talking about, I think, though since I do not understand the mechanics of what you do or the risks involved the % is somewhat meaningless, as at first glance you talk of making a modest 15% profit whilst risking 33% though when one reads again you do not state that the 33% is actually at risk, obviously I realize there will be some capital risk involved. I think it does serve to highlight one point. What people choose to risk per "venture" is rather meaningless without understanding exactly what he/she is doing and how they are doing it. In stock trading not all trades are equal.

With regards to the daytrade example it was not proffered in a competetive manner against what you do. It was used to highlight the fact that the size of a trade is not what would give a trader a coronary, but merely the amount risked should the trade go awry.

To answer your queation, yes it was a daytrade, and yes I have migrated towards indices and sectors for various reasons, such as you have mentioned, also while indices do not give the profits that more volatile stocks do, it is a trade off as they are more predictable than individual stocks and are kind enough to telegraph warnings as to their intentions. As to catching the entire move of an index, that would be impossible on a regular basis, and to attempt to do so would be foolish as it would involve attempting to pick tops and bottoms. The range of that day was $1.22, the trade in the example sought to catch about half of that. As I said originally it all depends what you're trying to do, trading this way will not get you into Forbes, but it can make you a decent living.

Just to clarify since you have looked closer at the components of that trade the entry of 104.54, (104.5 if you were slow) the initial target was 103.95 200 day ema, that gives you a .55 - .61gain verses a .30 loss 1:2 risk/reward. Expectancy 50/50? not sure what you mean by that

 

[ducati998]

Rogue,
Without understanding the mechanics the numbers do lack clarity. What I simply wished to illustrate was that outside of daytrading there are longer term methodologies that approach risk and position size from an alternative perspective as the RISK is inherently different. The 15% return is the minimum that I would place a position (annualised).

With regards to the daytrade example it was not proffered in a competetive manner against what you do. It was used to highlight the fact that the size of a trade is not what would give a trader a coronary, but merely the amount risked should the trade go awry.

Understood, but here is the crux, the risks that must be part of the calculation are market risk, execution risk, business risk. When I calculate risk I need only concern myself with business risk. This will immediately allow greater size, as my risks are reduced by 66% by comparison.

Expectancy 50/50? not sure what you mean by that

I simply mean that when you place a trade from a technical perspective you will subjectively delineate your entry point, possibly from a trendline support, or bollinger breakout, etc.
Now, you from past experience will feel that the probability of this trade succeeding may be 80% from historical data. Historical data however is not predictive, therefore your trade will either fail, or succeed,............. 50% expectancy. Once you add in the additional risk, trading costs, variability in reaching price targets due to psychological twitchiness, and daytrading becomes an extremely difficult undertaking that only a select few ever master.

Cheers d998

 

[roguetrader]

Hi d998
Thanks for taking the time to share your thoughts and views, agree with a lot of what you say and disagree on a few points. Don't want to drag this thread any further away from it's intended direction. Perhaps we'll find occaision to discuss further in the future.

 

[Grey1]

Rogue,
Without understanding the mechanics the numbers do lack clarity. What I simply wished to illustrate was that outside of daytrading there are longer term methodologies that approach risk and position size from an alternative perspective as the RISK is inherently different. The 15% return is the minimum that I would place a position (annualised).



Understood, but here is the crux, the risks that must be part of the calculation are market risk, execution risk, business risk. When I calculate risk I need only concern myself with business risk. This will immediately allow greater size, as my risks are reduced by 66% by comparison.


I simply mean that when you place a trade from a technical perspective you will subjectively delineate your entry point, possibly from a trendline support, or bollinger breakout, etc.
Now, you from past experience will feel that the probability of this trade succeeding may be 80% from historical data. Historical data however is not predictive, therefore your trade will either fail, or succeed,............. 50% expectancy. Once you add in the additional risk, trading costs, variability in reaching price targets due to psychological twitchiness, and daytrading becomes an extremely difficult undertaking that only a select few ever master.

Cheers d998

Ducati,


This is the first post I read from you and i loved it . It is great to read some quality posts . Keep it up

Grey1

 

[High Risk]

If I was trading 100k, but didn't want to risk too much per day, I'd keep 30k for a volatile futures index-margined to the max, and using a good strategy with 75% + correct calls. The other 70k would go on a mix of products, long and short. Some gold, oil, silver, currencies, stocks. Diversified, interesting, and hopefully a steady hedge. Then I could commit myself to taking bigger risks on that 30k.

However, I believe that if you've got a good enough strategy to trade up to 500k, don't change a thing. Keep leveraged to the hilt, follow the strategy, aim for 70% + profitable trades while limiting the drawdowns. The point is to be as good as you can be (fast and clear), not as timid as possible. Capital preservation comes also from good rules and ability, not just from trading small amounts of available capital. Remember, it's not money, it's points. Just trade points.

As far as historical data not being predictive? Hogwash (with all due respect, since I'm new here). The market goes where it goes because of where it's been and what traders perceive about that previous action, and the implications for the future. And a few other reasons, but that'll do for my friendly rant.

 

[Danger Field]

As far as historical data not being predictive? Hogwash (with all due respect, since I'm new here). The market goes where it goes because of where it's been and what traders perceive about that previous action, and the implications for the future. And a few other reasons, but that'll do for my friendly rant.

Double hogwash back. The real money that moves the markets is not the traders who think the past informs the present or the future.

 

[Mfler]

1% or less is great!