Question. Would that not be a lot of cash sitting on the sideline not being put to work? 1m account, even with 10 active trades with 2% unit of risk per trade ($20,000) is $200,000. 25 basis point would be $25,000 willing to lose. What do you do with the other $800,000? Bonds? Dividend paying stocks?
2% is the amount you’d lose if the trade goes wrong. Not the notional amount for putting on the trade. For example if I want to buy SPY with a 5% stop then I’d be risking 2% or 25k from my entry to my stop. That means I need to buy a lot of SPY to simply have a 25k stop.
Great writing (lenghty so i didnt read everything to be honest) 😊
appreciate it
Question. Would that not be a lot of cash sitting on the sideline not being put to work? 1m account, even with 10 active trades with 2% unit of risk per trade ($20,000) is $200,000. 25 basis point would be $25,000 willing to lose. What do you do with the other $800,000? Bonds? Dividend paying stocks?
2% is the amount you’d lose if the trade goes wrong. Not the notional amount for putting on the trade. For example if I want to buy SPY with a 5% stop then I’d be risking 2% or 25k from my entry to my stop. That means I need to buy a lot of SPY to simply have a 25k stop.
I see. Thank you.
Bureaucracy is the product of risk aversion.
This was incredibly great! Thank you for adding that PTJ excerpt. I will read that over many times.