Get started

Risk

Respecting RiskA friend of mine send me a question yesterday, "hey, curious question. how much was the a great day / swing/ scalp trader looking to make per day prior to Bitcoin?" This was my answer yesterday: That's an invalid question to ask a real trader. A trader takes what the market gives them. One may go days, weeks, perhaps a month without a signal that fits their rules that they have tested to be successful. A big part of being a trader is patience and staying true to their system that they have confidence in. A lot of "trading education" advertises "Make $XXX per day" but I'd be very wary of them. That's marketing I think in many cases to draw people in because it's something their customers can understand and desire. The reality is that a real trader goes through ups and downs and you just have to take a month-by-month or even year-by-year approach. I have had a great year. But I had a crappy October. I lost money in October straight up. But it's ok because this month I'm recovering. That's just the way it goes. Another reason I don't particularly like that way of looking at it is because I think you have to look at gains in % terms. Someone making $100/day on a $100,000 account is very different from someone making $100/day on a $1,000 account. The first is making 0.1% and the other is making 10%. To make 10% the trader has to take on much bigger risk relative to their account size. More risk = bigger losses when they inevitably occur. It's more important to focus on having good risk adjusted returns rather than dollar amount because if you build the skills to have good risk management all you have to do then is grow steadily. I get a little verbose when I'm asked simple questions about trading because it's my thing and I want to make sure to dump all I know on folks so that they can know the TRUTH. My friend followed up today with a revision to his question which I answered and made this annotated demonstration above. Thanks, you’re right, I should’ve framed the question better. Would your answer be different if I framed the same question as a percentage return regardless of principle investment? That is a much better way to frame it but then that still opens the question of risk. You simply must take on more risk (of loss) to get more return (of gain). There's really no way around that. The billion dollar hedge funds are like the pro athletes of trading. If they make over 10%/year rich people and retirement funds will invest millions with them. That is considered really good returns at that level of the game. Basically if you beat the "6-7% average yearly return of just investing in the stock market" you're winning. What the S&P500 does that year is called the Benchmark. So beating the benchmark means you're better than what everyone else is doing. If you fail to beat the benchmark then you've failed that year. That's sort of how the NBA of trading goes. Being a smaller trader on a smaller account you actually have advantages they don't. You can be faster, more agile, take on more risk, not be restricted by size and not kept down by regulations. So you can do better than 10% for sure. But I think a lot of people want to double their account in a year. This is possible to a seasoned trader for sure but it's dangerous. I usually say to that "something that can double your account one way can cut it in half the other way". That's the nature of risk in trading. There is also the factor of what you're trading and when you're trading. Trading crypto this year someone could have definitely doubled their account just going long anything. But what about if you'd started in January and been trading the big down move. We all know that there are down moves and that's what I mean by risk. You will take hits and the bigger your position the bigger the gains... but the bigger the hits. The only way to stay in the game is to stay tight with the risk and that means giving up some of the big YOLO potential. There is no easy answer is what I'm getting at. It's a game. That is a much better way to frame it but then that still opens the question of risk. You simply must take on more risk (of loss) to get more return (of gain). There's really no way around that. The billion dollar hedge funds are like the pro athletes of trading. If they make over 10%/year rich people and retirement funds will invest millions with them. That is considered really good returns at that level of the game. Basically if you beat the "6-7% average yearly return of just investing in the stock market" you're winning. What the S&P500 does that year is called the Benchmark. So beating the benchmark means you're better than what everyone else is doing. If you fail to beat the benchmark then you've failed that year. That's sort of how the NBA of trading goes. Being a smaller trader on a smaller account you actually have advantages they don't. You can be faster, more agile, take on more risk, not be restricted by size and not kept down by regulations. So you can do better than 10% for sure. But I think a lot of people want to double their account in a year. This is possible to a seasoned trader for sure but it's dangerous. I usually say to that "something that can double your account one way can cut it in half the other way". That's the nature of risk in trading. There is also the factor of what you're trading and when you're trading. Trading crypto this year someone could have definitely doubled their account just going long anything. But what about if you'd started in January and been trading the big down move. We all know that there are down moves and that's what I mean by risk. You will take hits and the bigger your position the bigger the gains... but the bigger the hits. The only way to stay in the game is to stay tight with the risk and that means giving up some of the big YOLO potential. There is no easy answer is what I'm getting at. It's a game. Let me illustrate this for you. So let's say you bought Bitcoin on January 1, 2020 with 3 different "risk profiles". You could have just bought 1 Bitcoin, with cash, for 7170, and held. Or you could have taken 2x Leverage meaning you only put down $3585 Or you could have done 3x which means you put down $2390. If you'd held those positions you would have done as the chart shows above. 3x would have blown your account... you wouldnt have been in the position to make gains by the end because you got margin called. 2x You'd be sitting on 4x your money... but at one point you'd been looking at an 88% loss. 1x and you'd taken a hit but by the end you're doing pretty good. Believe it or not... I've been trading so long and taken so many hits... that I don't even do 1x. I do something like 0.5x most of the time. I just have a strong respect for risk AND I'm trying to put myself on that level of the NBA players of Hedge funds and how they do things.
BITFINEX:BTCUSDEducation
by norok
4
Importance of risk management : this trade is now risk free!I took this trade and was expecting price to move 3R in my favor. However, after hitting 1R, the price just collapsed back. Even though I might loose this trade - but because of my risk management plan, this trade is already risk free for me (after it hit 1R). I cannot express enough - HAVE A RISK MANAGEMENT PLAN that works for your attitude! Risk management 1) Reduce 50% at 1R => Trade becomes risk free 2) Reduce further 25% at 2R AND move SL to break-even 3) Close trade at 3R 4) Winner = 1.75R (looser = 1R)
by makuchaku
1
Swing trade *AUVI* Not much data due to company time in market but here is what I have: Entered position today in small increments. Chart shows a bounce off area of S1(Support) and looking to make it way to P(Pivot point) Neutral outlook here with a very bullish outlook should it go back up past $7.90. Stop loss @ 5.0 4.97 *indicators used* -ZigZag -Supertrend V1.0 -Pivots -Vol -MACD -MA *Please leave a like if you found this useful* ------------------------------------------------ Sector: Health Technology Industry: Medical Specialties Applied UV, Inc. engages in the design, manufacture, development, and sale of infection prevention UV products for the healthcare, hospitality, and residential industries. It operates under the Disinfectant and Hospitality Segments. The Disinfectant segment designs, manufactures, assembles, and distributes automated disinfecting mirror systems for use in hospitals and other healthcare facilities. The Hospitality segment manufactures fine mirrors specifically for the hospitality industry. The company was founded on February 26, 2019 and is headquartered in Mount Vernon, NY.
A
by BeardedSince
WRITE THESE ON PAPER AND READ THEM EVERY DAY TO GO YOUR BLOODTRADE NOT 100% FACT , IMPOSSIBLE SIGNAL , PLACE,WAY 100% GIVE YOU PROFIT , TRADE IS % POSSIBLITY SO UNDERSTAND STOPLOSS IS PART OF THIS GAME UNDERSTAND IN TRADE PROFIT NOT NO1 ,RISK IS NO1 , REDUCE RISK , KEEP LOT SIZE VERY LOW IS IMPORTANT NO1 MY SIGNAL(ALL PRO,) ACCOUNT REPORT IS 50TP 50SL (50%) BUT SL=3*TP OR MORE 1000$ ACCOUNT = MAX 0.01 LOT (-20$) MUST YOU TRADE WITH MAX LEVRAGE 20) , PRO KEEP LOT 0.01 BUT TRY TO PICK MORE PIP,POINT FINALY KEEP 0.01 LOT FIX , 100% PUT SL ON LOW(HIGH) INSTEAD INCREASE LOT SIZE(RISK) INCREASE YOUR WAIT TIME IN PROFIT 100% you will loss =increase lot size , increate position cont , open posation near toghader , remove SL , margin level under 500% , cant wait in profit , close + posation soon ,keep - loss position find a way ,strategy to put your order and shot down PC min 24 hour go away and dont open platform
XETR:DAX
by ramin_trader2006
2
RISK 2 REWARD ratio is the key I know almost every trader has asked themselves these questions: How come I keep losing?! WHY?! Why do I keep getting stopped out?! Why is it taking so long? ! Is it even possible?! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Today I have some good news for you maybe you already know this maybe you don't, but this is for those folks who do not know the power of a good Risk to Reward ratio. Let me tell something real quick you do not have a 80% winning rate not 70% I am going to say not even a 50% winning rate to be profitable ( Hold ON A MINUTE man HOLD the bus man... serious) dead serious. With a risk to reward ratio of 1:2.5 you only need to win 30% of your trades to be profitable ( see below ) SAY YOU execute 10 trades and you only win 3 so essentially 30% LOST:7 WON:3 Total loss: Total profit: 7 * 1 = 7 3 *2.5 = 7.5 Total profit - Total loss = +0.5 Now even though 0.5 is not a lot at least it's not a loss. But there are a few things extra to keep in mind : 1) Your risk to reward has to stay the same for the period of the 10 trades 2) Your lot size needs to stay the same 3) AND as possible try to keep the amount of pips the same for your ratio because it does not help if you win 3 trades and you decided to set one of your positions SL as 100 pips and its TP as 250 pips and the rest of the positions SL as 20 pips and TP as 50 pips. If you lose the the big trade and hit the SL of a 100 pips its gonna through everything out of wack. So be sure to try and keep everything as consistent as possible and it will be a matter of time before you see profits. Trade with H
by Trade_with_H
Risk management helps with many psychological issues in tradingLet’s also talk about another so very important, and often undervalued part of risk management. Risk management really does help me to stay emotionally stable during trading. Just think about it: If I place a trade with a 30% risk and I lose it, it will hurt so much, and it will allow my negative sides, my revenge nature to come out and start dominating. I will be stressed, I will not sleep well if this trade will stay overnight. And even if I win, I will be emotionally and mentally tired, I will most likely not be able to continue trading in a normal state of my mind and emotion. The next thing is not so obvious, but if you have bad and not consistent risk management, you will NOT TRUST YOURSELF. Can you imagine how destructive it is on a subconscious level, how much stress it causes? You start your trading day and deep inside you know you can do many bad things with your account because you know how often you just follow an impulsive behavior, and how often you revenge trade. You know it can be so bad you can actually blow your account in 1 day, as it happened before. Even if you made a self promise to trade according to your plan. And on the contrary, what happens if I regularly, consistently risk 0.25-1% of an account. Many GOOD things will happen, both obvious and not so obvious. First of all, after entering a trade, I will most likely be able to stay relatively calm - I know if I lose, I’ll lose only 0.25-1%. I know I can trust myself and I will not move or remove my stop loss. I'm protected. It will help me to be pleasantly curious about how my trade will develop. If it goes my way, I will be naturally glad it was good, but I will not fall into euphoria and become over-excited, because I risked only 1% and my gain will be 1-2% only. That's very nice of course, but not too much to bring me to a state of euphoria. If it goes against me, I will allow it to do so and hit my SL. And after it does so, I will then realize that it’s totally fine to lose a trade. I can lose even 10 of them in a row, and I will still have 90% of my account ready to trade the next day, next week, next month, and next year. I believe good risk management lets you feel you DO control at least something in your trading, you will feel you can allow yourself to be mistaken about the trades you take. That's why I think we should not concentrate on the ways of eliminating overtrading, stress during trading, emotional trading, fear, and so on. Instead, we should focus on good risk management. I will post more about practical ways of improving risk management.
UEducation
by Yelli_trades
1
How much to risk per trade? Returns and drawdowns.Between 1990 and June 2000 the median hedge fund (there are not that many that started in 1990) had an annual return of 16.3% and max drawdown of 28.5% according to MORGAN STANLEY. Keep in mind the 2/20 destroys profits. (16.3%*1.25)+2% =  22.4%, and 28.5-2 = 26.5%. So what the median fund actually did I I did not mess it up was get 22.4% return a year and a max drawdown of 26.5%. Of course that drawdown is the worst over a 10 year period. The S&P 500 has an annual return of 17.2% and max drawdown of 15.4%. What is interesting is to look at the details, for example the few specialist credit between 90 and 00. The smallest return one had this to show: 11.5% annual, -4.9% max down. The biggest return one had this to show: 17.4% annual, -19.4% max down. More returns but with much more drawdown. Here is the paper: www.morganstanley.com A portfolio of hedge funds, since they're not all completely correlated, would do much better than the S&P500 in particular on the drawdown side. Renaissance says their medaillon fund uses an average of 12.5 leverage and takes 8000 trades at the same time 4000 short & 4000 long to reduce risk even more. If this is true it means going in each position with 0,15% of their account. Not sure how far their stop is but has to be less than 10% of a share price, this means a risk of 0.015% per trade at most, now since there are 8000 at the same time it would be 8000 times more than this, but since there are shorts and longs it sorts of evens out and who know what their real risk is? All we know is it is very small that's for sure. But leverage costs money, and what RenTec did was since their risk was so small and they do a ton of volume, they partnered with banks that offer them extremely cheap leverage. And then they averaged 66% a year in the past 30 years, with a fund capped at 10 billion. The secret is diversification, it reduces dramatically risk which allows for better returns. But we have to come up with this diversification, not easy to find another good place to invest in, another good uncorrelated strategy. And when we find those additional sources, we are not RenTec we have to pay a big price for leverage so we cannot just scale it hard. Certain "strategies" will help reduce risk but they also cap returns much and leverage is not free so it might not be worth it depending on the person. I just want to take a look at a few non-managed "low fee" "safe" no brain funds. Examples for the 10-year period ending January 31, 2017: Vanguard LifeStrategy Growth Fund (MUTF:VASGX) has a Maximum Drawdown of 47.6% and annual return of 4.7%. UBS Global Allocation Fund (MUTF:BPGLX) has a Maximum Drawdown of 48.7% and annual return of 2.6%. This fund has the rather unappetizing combination of low return and a large Maximum Drawdown. LoL this is so bad. And all the grandpas are loving it, they think they found the holy grail and pat each other on the back. Add to this the fact that most people withdraw at the worse time... Over the same 10 years period the S&P500, returned an annualized 7.024% dividends reinvested (4.8% otherwise) with a max drawdown of 57.8% From 2000 to 2020 (september) it had annualized returns of 6.23%. From 1871 to 2019 it returned about 9% (dividend reinvested) - 6.8% if we adjust for inflation, with a max drawdown of Adolf Hitler & Auschwitz the ultimate price. So we're about in the average with 6%. Growth is slowing down (demographics, tech limits, earth limits...) so we will probably average less than 6% in the future. From 2007 to 2017 the top strategic DIY portfolio recipes had returns of ~typically 11% with max drawdowns of also about 11%. Ray Dalio pure alpha 2 has returned 11.5% / yr in the last 20 years and max drawdown I'm not sure I think it was 8% recently and much less before that. Those numbers are hard to find seriously... But well we get an idea of how far it can get pushed. An article from 2017: "Investors earned an average of 4.67% on mutual funds over the last 20 years (Source: www.creditdonkey.com)" of course there is no mention of drawdown because who cares am I right? Mutual funds are not for the best & brightest of investors. Big risk is not a magic trick. "Big risk" does not mean "big return but with big risk". It means NO returns. It means losing with a winning strategy 😂.
Education
by MrRenev
1