In this post we look at the topic of the proper amount
of risk to employ in your trading strategy.
The goal in trading is fairly straightforward, minimize your losses and maximize your winnings.
In order to be able to do this effectively proper position sizing is essential.
Risk too much on a single trade and your chances of ruin go up dramatically
as eventually a series of losing trades will materialize and cripple the account.
Risk too little and you will not be able to achieve your full potential as a trader
and will have to settle for low returns.
Every trader has a different tolerance for risk.
Here is a great rule of thumb that I’ve found to be ideal in trading.
Risk as much as you can tolerate per trade without feeling pressured by your positions.
If you notice yourself thinking about your positions all the time
and are triggered to relieve the pressure; you have breached your risk threshold.
Normally this will lie somewhere in the range of 0.5% to 3% of directional risk of equity per trade.
Not feeling pressured is key here.
You may feel the normal bodily sensations that occur
with any risk taking activity and actually you may,
but you should NEVER feel pressured in your trading.
Remember you are trying to maximize your profits over a series of 10-20 trades and more.
What good does it do to feel pressure on any given trade?
Nothing, it is destructive for your mental health and trading account.
Some traders have a need to experience pressure every time they put on a trade.
I know all too well I used to be one them.
This is a distraction mechanism, that diminishes a trader’s ability.
A good way to find out where your pressure points lie is in visualizing different losses upfront
and see which are the ones you are comfortable with.
Is it 0.5%, 1%, 2% or 3% of your equity?
Try it and experiment for yourself.
Knowing where your pressure points lie and actively staying
within that boundary will greatly improve the quality of your trading.
source: PsychingOuttheMarkets.com
Futures trading involves substantial risk and may not be suitable for everyone.
of risk to employ in your trading strategy.
The goal in trading is fairly straightforward, minimize your losses and maximize your winnings.
In order to be able to do this effectively proper position sizing is essential.
Risk too much on a single trade and your chances of ruin go up dramatically
as eventually a series of losing trades will materialize and cripple the account.
Risk too little and you will not be able to achieve your full potential as a trader
and will have to settle for low returns.
Every trader has a different tolerance for risk.
Here is a great rule of thumb that I’ve found to be ideal in trading.
Risk as much as you can tolerate per trade without feeling pressured by your positions.
If you notice yourself thinking about your positions all the time
and are triggered to relieve the pressure; you have breached your risk threshold.
Normally this will lie somewhere in the range of 0.5% to 3% of directional risk of equity per trade.
Not feeling pressured is key here.
You may feel the normal bodily sensations that occur
with any risk taking activity and actually you may,
but you should NEVER feel pressured in your trading.
Remember you are trying to maximize your profits over a series of 10-20 trades and more.
What good does it do to feel pressure on any given trade?
Nothing, it is destructive for your mental health and trading account.
Some traders have a need to experience pressure every time they put on a trade.
I know all too well I used to be one them.
This is a distraction mechanism, that diminishes a trader’s ability.
A good way to find out where your pressure points lie is in visualizing different losses upfront
and see which are the ones you are comfortable with.
Is it 0.5%, 1%, 2% or 3% of your equity?
Try it and experiment for yourself.
Knowing where your pressure points lie and actively staying
within that boundary will greatly improve the quality of your trading.
source: PsychingOuttheMarkets.com
Futures trading involves substantial risk and may not be suitable for everyone.
