Over the past few weeks, we asked 17 trading professionals from all different areas of trading to answer one question:
And here are their answers:
Adjusting your stop and position size based on volatility
The very first rule we live by is: Never risk more than 1% of total equity on any trade. -Larry Hite (Market Wizard)
One of simplest lessons that a trader can learn to ensure long-term success is never risk more than 1% of your trading account on any one trade. This does not mean trading with 1% of your account capital, it means adjusting your stops and position sizes based on the volatility of your stock, currency, commodity, option, or future contract. This way, when you are wrong, the consequences are the loss of 1% of your trading capital. This not only eliminates your risk of ruin for a string of losing trades, but also decreases your stress level so you trade with a clear mind.
If you don’t understand the reality of losing streaks, then you haven’t been trading long enough to experience a volatile market, or an unexpected event that shakes a stock, commodity, currency or an entire market.
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