One of the questions every trader has to think about at some point is, how much of my account should I risk per trade? A percentage? If so, what percentage?
I’d love to have the right answer in my pocket for you, like “exactly 1.25% per trade/market and no more than 5% at the same time,” but unfortunately, I don’t.
Again I know you don’t want to waste too much time with this boring aspect of trading and just want a number to work with so you can
start trading. And I understand that very well, I’ve been in the exact same situation when I started out. But, the best advice I can give you is to not hurry over this and other important
aspects and take all the time you might need to figure this out in detail.
If you don’t, you’ll sooner or later learn why this is important the hard way. While I can’t give you a direct answer, let me try to give you some hints how you might find the answer for yourself.
First of all, you won’t find it if you don’t know from backtests, statistics or your trading diary of what kind of a winning rate, drawdown and portfolio exposure you will probably have to expect.
These are the very basic numbers to work with. Simply put, if you are a trend trader that might make all profit for the year in a couple of big winners, but has to take a lot of small losses you
can’t risk as much per trade as if you’re trading a system with a high winning rate and overall small drawdowns.
The second hint is to consider how many trades you’re in at the same time. Are you trading 2, 20, or 100 markets at the same time? What’s the correlation between those markets and those markets
being traded with your strategy? If you do 50 trades per day you’ll have a very different risk profile than a trader who does 50 trades per month.
There’s a lot more to think about, but I’d like to move on to the final aspect which is probably the most important. Think about your risk profile as a trader. How much can you handle before you
throw in the towel? It’s easy to see a drawdown of 30% on a simulated curve and think „no problem“ but it’s a totally different story when you’re in a real 30% drawdown losing real money. Is this
still „no problem“? Or do you think 20% are maybe more realistic for you? For most traders, take the drawdown that you think you can live with and then target 2/3 of it - this will probably be
what you can really stomach.
I hope this gives you a good overview what to think about regarding position sizing and an understanding as to why I simply cannot have the exact answer ready for you! I also hope it
inspires you to go deeper into this very important (and interesting once you understood it’s importance) topic and learn more about it.
Once you decided who much to risk per trade, you might want to watch my position sizing series on YouTube:
All content on AlgoStrats.com is only for educational purposes to show you the type of systematic trades that you may consider once you have learned to trade and analyze the market yourself. It does not constitute investment advice. Marco Mayer & Trading Educators, Inc. will not accept liability for any loss or damage, including but not limited to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
Trading Futures, Trading foreign exchange on margin and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures, foreign exchange and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, foreign exchange, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Any opinions, news, research, analyses, prices, or other information contained on this website, blog, twitter, youtube, facebook and elsewhere is provided as general market commentary for educational purposes only, and does not constitute investment advice. Marco Mayer and Trading Educators, Inc. will not accept liability for any loss or damage, including but not limited to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Derivative transactions, including Foreign Exchange Products and Futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.