Prudent or excessively cautious ?

[Dow Dog]

I only risk a maximum of 0.25% of my capital on any one trade.

I would be interested to hear if people believe this to be sensibly prudent or excessively cautious.

Luckily my capital is large enough to allow me to make sizeable trades and still only risk this small percentage of my pot.

But I am often tempted to raise this to 0.5% or even higher by increasing position size and open up the possibility of very large pickings.

 

[Trader333]

I would stick to what you are happy with and why are you considering a change at all ?

If your account is growing then the amount of stock per trade will automatically increase as your account grows. Risking more seems to be unnecessary and for what reason ?


Paul

 

[Dow Dog]

You're right Paul.

The only reason to increase it can be attibuted to GREED and that is something that I must endeavour to keep out of the equation.

 

[wellshot]

it all depends...

if you've raised the large capital base through your trading, then ..NO =if it ain't broke , why try and fix it?
if you haven't and have otherwise managed to accrue that big pile through other work..then that's another matter..
still further, what might be sizeable trades to you is chicken feed to one and impossibly large to another.
sounds like you know compared to your peers you're donig well, yet you yearn for fullfillment, which at this juncture, you are choosing to define through your work as larger trades on the same instruments..is that where you're at, i wonder.
jesse livermore was an advocate of not using more than 10% of your capital base..
tere is a view that too small a % can introduce sloppy trading as there is no risk, as such to your pile. too big and a big hit on a bad day etc...
for me it's more a case of determining your trading style through experience. let's say your a day trader using the 1/5 min charts on the dow [me!] to get your fill easily in an instant, assuming you're using a spread betting firm, may limit you to £20 a point.
this , then , is your bench mark by which you can trade effortlessly. anymore and you introduce hiden stresses as you may not get filled=unconfortable feelings take over etcetc
so, you either accept £20 is a max and enjoy it or try position trading [say the 10 min chart] use the phone and place £100 positions..now how would you feel? or even a £1000 as with IGindex or 50 lots on their CFD's [500$ point]!
% of capital can be uselessif your trading style/natural rythym works best at say trading the 1 min dow..etc
if your a position trader[dailys] then 10% makes sense on margin
as you can buy 10 times the amonut of stock..but your stop loss MUST be 10% or less to protact your remaining capital, risking only your deposit..as wel you know, i dare say...
it's down to your trading style really..have you outgrown your £££?
or did you have a pile to begin with? whats your sizable bet?? and on what??

 

[donaldduke]

Dow dog,

How big are your drawdowns?

 

[Dow Dog]

My largest drawdown is 0.25% of my capital so pretty minimal.

I trade NASDAQ stocks only and ALWAYS pull out ( pardon the expression ) at the very latest, at a loss of 0.25% of my pot.

 

[donaldduke]

Are you saying you only never have more than 1 loss in
a row?

 

[Dow Dog]

Sorry, maybe 3 but no more.

 

[donaldduke]

A system that has only 3 losses in a row is very good.
But you could still get a drawdown of 5 losses (say 3 losses
followed by 1 win and then 3 losses again). Im assuming
your wins are also 0.25 but your win size isnt that important
when considering your drawdown.

So lets say you can have a max drawdown of 5x your stop loss.

That would equate to 1.25%, now say you have 10,000 in your
account at its peak, such a drawdown would mean your account
could not fall below 9,875 (assuming you dont make any
psycological mistakes or there isnt a wild move in the markets
which dont occur that often).

If you increased your risk to 1%. Your account would could
possibly go as low 9,500 (5% down) but not much lower.

Could u live through a drawdown like that? How would it affect you
being down 500 pounds.. I dont now how much money you
have in your acccount you could have 100,000 then the max
drawdown would be 5000 pounds.. Then the drawdown starts to feel a bit more scarier..

At the end of the day its what you feel comfortable with, absolute
money shouldnt matter but in the real world it does.. As you
increase your pounds risked you increase the chances of
subconsiously sabotaging your own system.. The only way
to combat this is to increase your size slowly over time.

 

[Dow Dog]

Good post Donald.

Yes my system is pretty reliable. It is a low reward/risk method which yields a high hit rate. A sequence of 5L,1W and 3L could obviously happen but it hasn't yet and if it did then the whole rationale for my method would be blown and I would have to think again.

 

[chump]

What we are not focussing on here is why you posed the original question. The fact that you asked that question at all would indicate it is in your mind that you might be being too cautious , and you might be wondering how to move past that question.

This might already have occured to you.

Playing with the markets money is psychologically easier than playing with your own. Any loss can be thought of as a temporary loan back to the market , and in a winning system that is exactly what it should be.

You have a winning system so would it help you to adjust your risk by relating any increase in risk only to the profitable gain that you have made, and presumably will continue to make ?

Just a thought.

Cheers