2% stop loss rule

[davidh1819]

Hello

Just wondering How many people here go by the 2% stop loss rule?

I have traded for 7 weeks now made around 15% return but all together risked 25% of my account in the proccess and I have only risked maximum 2% per trade and around 30% of my trades end up winners. I am starting to wonder maybe risk more for more return? double my positions and risk 4% per trade?

is this a good idea or not?

 

[wackypete2]

If your stats are true this is good trading. Just to clarify, you are risking 2% max per trade, but how many open trades do you have at once? 1 or 2 is fine, but if you have several open trades that amounts to 25% risk then that is way too much.

How much were you expecting to make? 15% over 7 weeks is great. Doubling the size works according to the math, but it's your emotions that could get in the way. I'd wait until you make 25-30% trading as you currently are then try increasing stakes and risk. This way you have a cushion and if you fall back to your original trading pot then go back to your original 2% risk.

Trial and error has worked for thousands of years!

Good Luck!

Peter

 

[isatrader]

Well it's good that you are thinking about your risk per trade. It's very important as sometimes you can go on a run of losing and managing your risk per trade is what will keep you in the game. Say you have 10 loses in a row at the 4% you are suggesting and wipe out a large chunk of your account. The side effect could be that you become afraid to trade and miss good trades, or worse you might try to increase your risk even more to try and get back what you've lost quickly and end up wiping out more of your account or blowing up completely. I think the 2% rule suggestion is a sensible one as it protects your account from a quick melt down while you are learning.

Also it can sometimes be a bad thing to have a winning run when you start trading as it can lead to over confidence and thinking that trading is easy, and then this leads to increasing the risk and then the market changes on you and the money disappears as quickly as it came to you.

Trade small while you a learning. They'll be plenty of opportunities to make money once you learn how to be a profitable consistent trader.

Good luck.

 

[brettus]

Hello

Just wondering How many people here go by the 2% stop loss rule?

I have traded for 7 weeks now made around 15% return but all together risked 25% of my account in the proccess and I have only risked maximum 2% per trade and around 30% of my trades end up winners. I am starting to wonder maybe risk more for more return? double my positions and risk 4% per trade?

is this a good idea or not?

I think you should stick to 2% if you can't handle losing it all. You haven't been trading long enough yet to up the size. I would stick to 2% for a year at least.

 

[Blaiserboy]

I think you should stick to 2% if you can't handle losing it all. You haven't been trading long enough yet to up the size. I would stick to 2% for a year at least.

Statistics and more statistics...

Good record keeping will help you in this area.....

 

[Pazienza]

Hello

Just wondering How many people here go by the 2% stop loss rule?

I have traded for 7 weeks now made around 15% return but all together risked 25% of my account in the proccess and I have only risked maximum 2% per trade and around 30% of my trades end up winners. I am starting to wonder maybe risk more for more return? double my positions and risk 4% per trade?

is this a good idea or not?

You are doing great, just keep on doing it. Don't increase your risk, just be patient.

15% over 7 weeks is a good result.

 

[Blaiserboy]

You are doing great, just keep on doing it. Don't increase your risk, just be patient.

15% over 7 weeks is a good result.

Patience needed...... the guy that survives is the one that does not expose himself to great risk.

 

[davidh1819]

Thanks for the advice guys

 

[Blaiserboy]

Thanks for the advice guys

Articles that I have read mention very conservative risks in order to stay in the game long term.

 

[tdrtw]

Personally I would drop it down to 1% until a good 6 months of consistency. Then instead of increasing your risk, increase your capital. You need to get into a good rythm. You need to face the draw downs. Taking a few winning trades is easy, it's the draw downs that start to give you the shakes and question your ability. A few wins and you draw the line to the moon, a few losses and depression/anxiety can set in, and then fear to pull the trigger. Then you stop trading, and low and behold the string of winners are there that bring you back to a new high, but you missed out. You are on the right track, just respect risk. The goal is be even keeled emotionally during winning and losing streaks. You are on the right track though, don't give up and respect risk.

Me personally, I risk 1% of capital per trade, and never have more than 3 open trades at one time. I also have programmed my system and run it from a server computer. So I don't actually watch the markets, I just manage it and make sure nothing goes wrong. "Trading" is now actually a very monotonous venture. That works for me.

 

[Blaiserboy]

Personally I would drop it down to 1% until a good 6 months of consistency. Then instead of increasing your risk, increase your capital. You need to get into a good rythm. You need to face the draw downs. Taking a few winning trades is easy, it's the draw downs that start to give you the shakes and question your ability. A few wins and you draw the line to the moon, a few losses and depression/anxiety can set in, and then fear to pull the trigger. Then you stop trading, and low and behold the string of winners are there that bring you back to a new high, but you missed out. You are on the right track, just respect risk. The goal is be even keeled emotionally during winning and losing streaks. You are on the right track though, don't give up and respect risk.

Me personally, I risk 1% of capital per trade, and never have more than 3 open trades at one time. I also have programmed my system and run it from a server computer. So I don't actually watch the markets, I just manage it and make sure nothing goes wrong. "Trading" is now actually a very monotonous venture. That works for me.

I see many recommendations of one percent...... I am not sure what quant types use as a risk model, many automated systems writers say one percent.

 

[tdrtw]

Blaiserboy, you made me think a little more about the 1%. Over a year ago I had upto 6 trades across different entities on at one time and used 0.5% per trade keeping no more than 3% risk of total capital on at anyone time. It was a little too much to keep tab of and over time (some mentioned statistics statistics which is very true), I weeded it down to 3 trades at 1%. Whole numbers are a lot easier as parameters.

Maybe a better way to think of it, is max loss of capital at any point in time. If you only ever had 1 trade on at any time (or you moved stop point to break even then put on another trade), you would only have 2% of capital at stake at any point in time. A very comfortable risk.

In end just don't bite of more than you can chew. As Blaiserboy mentioned above, the goal is to stay in the game. 7 weeks is a good start. Don't give up. And enjoy it! nothing worse than doing something you dislike just for "potential" money. There are plenty of things you can do that you dislike for "guareenteed" money

 

[shulink]

2% is the rule most books talks about,but my stop loss for each stock is 10%.
I think it is all depends how volatile the stock is

 

[tdrtw]

shulink, my assumption was that he was referring to the percentage of capital risked on a single trade (e.g. one has $50,000 in his account, thus he is willing to risk $1,000 on the trade). I believe you are talking about the stop price as a % of the entry price (aka Entry Long on XYX at $100, stop price of $90 or 10% of entry based on your stop rules.) Based on the above, you could buy 100 shares of xyz with a $10 stop and based off a rule of 2% capital risk and max 10% 'volaitily' stop).

This really is just a plain and simple numbers game in the end. I joke that it's like meeting girls as a single guy, you are going to have a bunch of losses, but when you get a good winner it pays for all the losses and makes it worth it. Just don't give up when you get knocked back a few times

 

[amit1986]

Stop losses should not be placed according to how much you are willing to lose. There should be some logic to a placement of a stop-loss. In other words, if you are trading off a chart pattern, stop losses should also be determined according to the pattern on the chart, not some arbitrary area where it exceeds your loss capacity.

When you determine a logical area to place your stop, position size should be adjusted according to your loss capacity. If there is no suitable position size to handle the loss, then forget about the trade and look for another one.

I just don't see the logic in taking a trade and putting a stop loss in an area that risks, say, 2% of your account.

 

[meanreversion]

Well, typically the stop is placed 1 ATR away from entry, such that loss if the stop is triggered equals one percent of the account.

Placing the stop 1 ATR away allows you (in theory) to overcome the noise of the market, and you also incorporate the volatility of the asset.

I risk 0.75% of my account per trade.. I'd like to get the account larger in order to risk only 0.5% at some point.

 

[DashRiprock]

there is another way with stops like the way i do it.

what i do is i put a stop in that is there only to protect my capital, it has nothing to do with were my trade is "wrong" or chart patterns. then as my trade unfolds i can decide whether it is working or not but also i can say "ok im getting out" and work my exit "trade" even if its a loss to save a tick or two.

sometimes i dont and my stop gets hit but its a v small % of my account.

 

[amit1986]

Well, typically the stop is placed 1 ATR away from entry, such that loss if the stop is triggered equals one percent of the account.

Placing the stop 1 ATR away allows you (in theory) to overcome the noise of the market, and you also incorporate the volatility of the asset.

I risk 0.75% of my account per trade.. I'd like to get the account larger in order to risk only 0.5% at some point.

Yes, that seems quite reasonable. I just think that it sends the wrong message to new traders to simply say "place a stop such that no more than 2% of your account is at risk". I agree with the logic that you shouldn't let one trade wipe you out, but if traders keep following that rule alone, it will wipe them out eventually.

Stops should be determined logically. For example if a stock is trending up with each candle making higher highs and higher lows, then placing a stop below the opposite end of the previous candle is logical because if this area is penetrated, then the trend is also likely finished. Once you determine the correct stop area, position size should be adjusted to match the risk capacity.

 

[Blaiserboy]

Well, typically the stop is placed 1 ATR away from entry, such that loss if the stop is triggered equals one percent of the account.

Placing the stop 1 ATR away allows you (in theory) to overcome the noise of the market, and you also incorporate the volatility of the asset.

I risk 0.75% of my account per trade.. I'd like to get the account larger in order to risk only 0.5% at some point.

I like that idea of shrinking risk as account grows........ I had not thought of that.....

 

[olionion]

I can understand why but wouldnt shrinking the risk be counter productive assuming R:R are related, you wont be using the extra capital?