Applying percent risk to system without stop loss - Aussie Stock Forums

Thread: Applying percent risk to system without stop loss

1. Applying percent risk to system without stop loss

How to apply percent risk to system without stoploss?

Percent risk require stoploss to derive the calculation

2. Re: No stoploss

Originally Posted by fingl
How to apply percent risk to system without stoploss?
Well we are dealing with dollars and the method of deriving how many dollars risked is with percentage. When the value of your traded issue in dollars has reduced by that amount then whammo. The sharks have you for dinner.

3. Re: No stoploss

Use a mental stop loss at the max risked value of 2% and set an alert up to tell you when the mental stop has been hit. The alert can be set up with your broker (fees may apply) or with software such as Stator or even Excel.

Example:

You have a trading pool of \$20,000. You buy 1000 units of ABC at \$1 per share. This makes your risk \$1,000 with no stop loss (1/20=5% of your capital). You want to risk at most 2% (0.02*20,000=\$400) so you decide to sell when the price reaches \$0.60 (600/1000).

4. Re: Applying percent risk to system without stop loss

% risk of capital--capital at risk x %
OR
% risk of position---Position moves against you x %
OR
Both?

There are many systems without a stop loss.
But to have a system that you can test results it has to have at least an entry and exit.

5. Re: Applying percent risk to system without stop loss

Originally Posted by fingl
How to apply percent risk to system without stoploss?

Percent risk require stoploss to derive the calculation
Hi Fingl --

I have described a method in my latest book, "Modeling Trading System Performance." It is a two step process:
1. Generate a set of trades that best estimate future performance. These could be results from the OOS portion of walk forward runs, or actual trades, or hypothetical trades.
2. Use Monte Carlo simulation to estimate profit potential and risk, and use that information to determine position sizing.

As you trade the system, continue to monitor results and system health. The correct position size for a system that is broken is zero.

Thanks,
Howard