Capital Employment

[bluejazz]

Hello All,

I have a general Trading Plan question I am hoping somebody can provide some insight into. I have a rule for max risk per trade and a rule for max portfolio risk. But I have read a fair amount (but no real details or suggestions) about something I will call Capital Employment (I have seen it called max system % and a few other things but max Capital Employment seems the most descriptive.)

Do traders generally have rules such as 'no more than 50%/60%/70%/80% of my capital will be in a state of risk at any time'? Or is it more typical to focus strictly on rules for max dollars at risk etc?

Thanks in advance for any help you can provide.

Jeff

 

[Belligerent_Drunk]

Read some books on money management. Start with Ralph Vince.

 

[Rhody Trader]

Traders who have on multiple positions will often have some sort of aggregate exposure limit. Keep in mind that there's a difference (or at least should be) between capital employed and capital risked.

 

[WklyOptions]

Bluejazz,

Agree with the above comments.

However - always be sure to include any adjustments on leverage. If trading standard FX lots ($10 per pip) - a stop loss break with poor slippage and on full leverage ($10 per pip) can be damaging to your equity. Bad slippages are difficult to guesstimate. But if using any degree of leverage - stress test the stop loss slippages by at least a 10-pip slippage.

Otherwise, the general rules below also may be helpful:

1. Before adding to any Open position(s) - make certain earlier Open Lots are moved to its Break-Even stop loss levels.
2. In general - adding or scaling in - make certain additional lot size is smaller.
3. For risk metrics - besides measuring leverage (e.g. $0.10 per pip to $10 per pip), be sure to check that you are not over-trading an asset by trading multiple pairs of the same base asset ----> and if basket trading ----> then the entire basket trading block should be pre-set to X% of account equity (no more than 5%).
4. If actively using Margin and leverage - do not trade/risk more than 30% of account equity. Things can go badly very rapidly and far worse than imagined!

Good trading to you!

WklyOptions