Jump to content
mahamuni

Risk Management

Recommended Posts

I am confused with risk management...

Lets say I have 25000 in my account.

I bought 100 shares at $55/share.  So it cost be $5500.  If I do not want to risk more than 1% then what would my stop be?

Is it 1% of 5500 or 1% of 25000.  

If it 1% of 25000 that does not make sense to me.

If it is 1% of 5500, that 55 cents per share.  That seems alot also to me?

Can someone throw a light on this with some examples possible.

TIA

Munish

Share this post


Link to post
Share on other sites

A better example is taking 1,000 shares with a $25k account. Since your buying power is typically 4:1, you can take a position up to $100k using leverage.

1% of your account is $250. This means 0.25/share on 1,000 shares.

The important part is to find a stop loss at a technical level, and figure out the per-share loss. This will determine the maximum share size you can take. Stop loss first, share size after.

Using the same numbers above, a 0.50 stop loss would mean taking 500 shares. And so on and so forth.

The 1% rule is a maximum. You can always risk less, but never more.

When I traded 100 share lots, I pretended that my account was $2,500. All risk management and daily goal/loss calculations were based off $2,500 and not the full size.

  • Like 1
  • Thanks 1

Share this post


Link to post
Share on other sites

See chapter 3 in 1st Andrew´s book or Chapter 7 in the new one (position sizing):

Step 1: 1% of your account (max risk per trade)

Step 2: Risk per share: (this depends on strategy) 

Step 3: Step 1 / Step 2 = Max number of shares you are allowed to tarde

You can risk less per trade as you are a begginner...

  • Like 1
  • Thanks 1

Share this post


Link to post
Share on other sites

Hi Robert

"The important part is to find a stop loss at a technical level.  That is the AHA moment for me."

Thanks

Munish

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.