1991issue C011-4
Keep one risk ceiling after equity highs
One described process binds a single-position first loss at 1-1.5 percent of capital and later cuts futures size if open risk exceeds 23 percent of equity, a point said to arrive often on a new equity-high day.
- The described process treats work as three parts: entries and exits, risk and volatility control, and the psychological factor.
- A position-concentration-limit of 1-1.5 percent of capital is presented as a first-loss bound meant to stay below 2 percent and to keep psychology inside a known worst-case amount.
- Open-position risk as a share of equity is said to be often at its maximum on a new equity-high day, and drawdowns are described as beginning after a favorable stretch.
- An in-trade-risk-ceiling of 23 percent of equity, described as roughly twice the initial risk allowance, is used to reduce futures contracts when that cap is crossed.
Three parts of the work
One described trading process treats work as three parts: entries and exits, risk and volatility control, and the psychological factor.
Editorial reading: TradersWeek treats those risk rules as one standing daily budget. The same concentration ceiling that blocks an oversized first fill is kept in force after an equity high, so discipline stays attached to a bounded process rather than to the last winning streak.
The first-fill bound
A position-concentration-limit is a pre-entry cap on how much account equity a single position may put at risk, used to keep the first loss decision inside a fixed bound.
A single-position initial-loss bound of 1-1.5 percent of capital is presented as consistent with a preference to keep that risk below 2 percent.
The same writer treats that bounded single-position loss as a way to keep the psychological side of trading inside a known worst-case amount.
When open risk peaks on an equity high
Drawdowns are described as beginning after a favorable stretch.
Open-position risk as a share of equity is said to be often at its maximum on a new equity-high day. This note calls that peak equity-high-exposure: the tendency for open risk, measured as a share of current equity, to peak on the same day a new account high is printed.
The in-trade cut
An in-trade-risk-ceiling is a second, still-active cap applied after entry so a position that has grown relative to equity is reduced before its open loss allowance exceeds the allowed multiple of the original stake.
An in-trade rule keeps a position’s risk from exceeding 23 percent of equity, described as roughly twice the initial risk allowance, and reduces futures contracts when that ceiling is crossed.
Psychology inside a known worst case
A trading-psychology-process is a repeatable rule set that treats entries, exits, and abstention as one procedure so discomfort is managed by the bound, not by improvisation.
Holding roughly the same daily maximum risk in each position is presented as a method for staying disciplined and reducing emotional highs and lows.
If psychology and risk are controlled, the mechanical entry-and-exit component is treated as of lesser consequence than those two controls.
All readings on this track · 15 readings
- 1991Keep one risk ceiling after equity highs
- 1999Pre-trade size filters for expectancy and ruin
- 2000Budget the loss before entry with stops and position limits
- 2002Retest the entry before you exit
- 2002Option income after volatility and capital gates
- 2002Cap, scale, and delever when research buys late
- 2003Staying power starts as a planned-loser sizing rule
- 2006Leverage caps and concentration limits
- 2007A first-trade survival sequence for leveraged futures
- 2010Bound trend risk before the trade is placed
- 2011Event shocks, size caps, and second-order reweights
- 2014A copied scale-in ladder is not a personal risk plan
- 2018Worst-day caps for clustered system books
- 2019Pair-spread layer limits and event shocks
- 2020Pretrade quantity filters that bound account risk