There is one aspect that in nearly every article I have read equally online and in books doesn’t cover.
Your percent risk model gives you your day-to-day general returns and drawdown profile you’re comfortable with. However, the percent of equity cap limits your catastrophic risk to the level that you’re comfortable with.
A person comment however. When you explain a gap as on the list of reasons for choosing Percent vs Percent risk sizing for fight stop loss cases, could it be as the gap causes the to sell down below the stop loss by an unknown ammount since in that “gap” scenario, stop loss is just not defining the exit price? Otherwise, if gap did not exist both methods shouldn´t be similar?
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You could choose that you wish to trade with a capital of ₹five lakh but may transfer only ₹2 lakh to your trading wallet, initially. You are able to then transfer the remaining amount as required. In such a case, consider a total corpus of ₹five lakh for position sizing purposes.
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An experienced trader should stalk the high probability trades, Wait and see and disciplined when waiting for them to build after which you can wager the utmost amount available within the constraints of her or his own personal risk profile.
on March 11, 2024 at 8:39 pm Thanks for your comment Jenn – I exploit percent equity for some systems and check these guys out percent risk (ATR based) for others depending on which performs best with the strategy. As for the percentage of your portfolio for active trading vs long term holds that really is a personal decision. I suppose you could make use of the broader market return being a proxy for long term holds and insert the index to your capital allocation spreadsheet along with your trading systems and work out the percentage you happen to be most comfortable by treating your buy and hold like a system and figuring out what percentage works best.
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When you are risking five% on your trade that could wipe you out! That is why you need to keep your risk for every trade reduced if you'd like to survive long term. Plus, when you have several losing trades in a row, you'll be able to still turn out with big drawdowns if you are risking more than 1% per trade.
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