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The reason is to control risk and preserve capital in the event of a market
reversal. The percentages you list are common. The risk is generally stated
however as the amount one should risk on a given trade in respect to the
total amount of the portfolio size. If your portfolio is $100,000 you should
limit the loss on a given trade to $1,000 to $3,000. The loss should be
mitigated by stops and/or other close monitoring of the position. Obviously
some trading strategies, and trades involving highly volatile securities,
are more likely to jeopardize capital more than others.
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of chichungchoi
Sent: Monday, February 27, 2006 11:06 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Why 1~3% risks for investment ?
Many people use 1~3% risks for their investment, but does anyone know
why? Does it have any approach to determine the risk level based on the
performance of any strategy?
Thank you in advance
Eric
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