1:5R on a position with a 1% stop and 0.5% risk on capital gives ~2.5% on cap
but
1:10R with a 1% stop and 0.15% risk on capital gives ~1.5% on cap
Ever get confused?, as to which one to adapt?
Here's what I thought about it.
Read on!👇
#SwingwithAJ
#Tradingproblems101
but
1:10R with a 1% stop and 0.15% risk on capital gives ~1.5% on cap
Ever get confused?, as to which one to adapt?
Here's what I thought about it.
Read on!👇
#SwingwithAJ
#Tradingproblems101
First of all, there's no straight arrow answer to it. It depends alot upon what we are comfortable with
Advantages of a net 1:10R with a 0.15% risk
1) Even with a 40% win rate and 250 trades in a year can make you ~128%
For Eg you trade with a 20L capital and take a fix risk of 3k per trade (0.15%)
at a 40% win rate you take 100 trades where you make 10R i.e. 30K which is 30L
1) Even with a 40% win rate and 250 trades in a year can make you ~128%
For Eg you trade with a 20L capital and take a fix risk of 3k per trade (0.15%)
at a 40% win rate you take 100 trades where you make 10R i.e. 30K which is 30L
and 150 trades where you lose 3K each which is 4.5L
Hence net you make ~25.5L a year (this assuming the profits are not even reinvested, just explaining a back of the envelope type calculation)
Hence net you make ~25.5L a year (this assuming the profits are not even reinvested, just explaining a back of the envelope type calculation)
2) Since the risk is small, even a 10 loss making trades in a row dents the portfolio by only 1.5%
3) The position sizes are comfortable, for Eg, a 1% stop and a 0.15% risk on capital is ~15% position size and it can be carried forward relatively easily
3) The position sizes are comfortable, for Eg, a 1% stop and a 0.15% risk on capital is ~15% position size and it can be carried forward relatively easily
The one big disadvantage I feel is, as with time when we get more setup clarity. Sometimes with 5% star setups 0.15% risk feels extremely small when the setup is too good.
For Eg: one of my recent trade HBL Power. I wanted a 1% risk on portfolio but got only ~0.3% fill
For Eg: one of my recent trade HBL Power. I wanted a 1% risk on portfolio but got only ~0.3% fill
Advantages of a net 1:5R with a 0.5% risk
1) Relatively significant gains to portfolio since the risk to portfolio is 3 times as much
1) Relatively significant gains to portfolio since the risk to portfolio is 3 times as much
2) When the conviction in a particular setup is high a tight stop of 1% and risk of 0.5% ensures a 50% position size and as with time when setup becomes clearer you want to have those big sizes in best of the setups.
3) If you are trading with tight stops lot of the times 1:5R is done on the same day and hence the sizes can be reduced and carry over open risk can be easily reduced
The big disadvantage is since the risk is 3 times as much even a 10 trades in a row going against us (fair possibility) can push back the portfolio 5% down.
Hence ultimately it boils down to what type of risk is anyone comfortable with and the setup clarity.
TBH, I am somewhere between the two. with a high probability setup I take risk ranging from (0.3-0.4%)
TBH, I am somewhere between the two. with a high probability setup I take risk ranging from (0.3-0.4%)
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