MANAGE RISK

Position Size Limits

  • Trade risk limit
    • Never risk more than 2%-5% of your equity on any individual trade.
  • Simultaneous open positions risk limit
    • The risk on all the open positions together should never exceed 10% of the account.
    • The total risk exposure (to their stops) for all positions should never be more than 50% of your total capital.
  • Consider correlated markets a single position
    • For applying the 2-5% risk per position, consider all the correlated markets as a single position.
  • Gradually build up positions
    • You need to take a decent-sized (up to 1/3 of equity) position to capitalize on markets that are moving for you. Take a small position initially, and if it starts working, build up to a full weighting.
  • Margin limit
    • Total initial margin requirements for the contract size you trade should be no more than 15-50% of your account size. 20-30% to be more conservative. 40-50% to be more aggressive.