Can you go over the pros and cons of using a position sizing multiplier type of system against a account balance risk percentage system ( so for example strict 1% per trade vs a system that uses lots position sizing multiplier)
Hi Jase. Yes of course. A 1% risk system is a great "starter for 10" way to manage risk. It of course means that you can restrict losses per position to help protect you account, and it's what most retail traders will do. However, is this the best way to manage the overall risk on your account? I don't think so. Let's imaging that you have 5 positions open at some point in time. The risk on your account will be very different if those 5 positions were based on correlated assets (assets that tend to move together), compared with if they are based on uncorrelated assets. So by adjusting the pos size of each (or even by choosing to not open a position sometimes) based on the correlation within the entire portfolio gives you much more control. This type of portfolio risk management is a much more robust way of managing risk.
Im wondering if the total amount invested should include the StopLoss. Notional value = total Amount invested but can I look at this as what Im risking at the moment on the asset? Because if you have the same lots/volume but 2 different distances in stop losses 1 short and 1 long then the cvars should differ.
I like your "Trade Safe".
;)
Thank you Martyn
Can you go over the pros and cons of using a position sizing multiplier type of system against a account balance risk percentage system ( so for example strict 1% per trade vs a system that uses lots position sizing multiplier)
Hi Jase. Yes of course. A 1% risk system is a great "starter for 10" way to manage risk. It of course means that you can restrict losses per position to help protect you account, and it's what most retail traders will do. However, is this the best way to manage the overall risk on your account? I don't think so. Let's imaging that you have 5 positions open at some point in time. The risk on your account will be very different if those 5 positions were based on correlated assets (assets that tend to move together), compared with if they are based on uncorrelated assets. So by adjusting the pos size of each (or even by choosing to not open a position sometimes) based on the correlation within the entire portfolio gives you much more control. This type of portfolio risk management is a much more robust way of managing risk.
Im wondering if the total amount invested should include the StopLoss. Notional value = total Amount invested but can I look at this as what Im risking at the moment on the asset? Because if you have the same lots/volume but 2 different distances in stop losses 1 short and 1 long then the cvars should differ.
Could you share a simple example with one trade?
Hi - Yes lots of examples coming in future episodes. Hold tight. We'll get there
Waiting for the next ….
Thanks Miguel