I have been setting by maxium risk at 2% which is about the most reccommended but I have been working off using $10,000 initial capital as that is probably what I will start with if I ever feel I have developed a strategy with enough positive expectancy to trade for real. My question relates to recording enough trades to work out expectancy and returns. I have been using the 2% value based on current capital which is to say the first trade has $10,000 x 2% = $200, the second has 2% of what ever is left after the price of the first trade goes out. For example;

First trade

Code Date Quantity Price Brokerage Taxes Total

IPL 15/11/2009 542 $3.260 $6.00 $1,773.24

Second trade

10,000 - 1,773,24 = 8226.76 starting capital x 2% =165 maximum risk.

To figure out the number of shares to buy for the next trade involves this formula: (max risk -(brokerage in +out))/(max stop loss).

As I enter more trades my tradable capital reduces until my risk/reward value goes below 2.5 which from what I have read is about as far as I should go, but this occurs after maybe 4 or 5 trades. I understand that this is because of the small initial capital but it doesn't help when trying to develop a system where I need results from at least 100 if not more trades.

Should I up my initial capital as it is just paper trading to maybe $100,000 to enable me to get enough results for a decent analysis? If I go that high should I reduce my max risk to 1 - 1.5 % or leave it at 2%? Or should I just use 2% risk of the initial capital i.e $200 out of $10,000 with all trades just to see if they would work out?

The process is a slow one at the moment because I don't have the programming skills for Amibroker so all calculations are manual. I have got some R&R coming up next week so I hope to commit a lot of that to Amibroker study and system development.

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