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> Many people use 1~3% risks for their investment, but does anyone
> know why?
No one knows what lurks in the minds of traders, otherwise we could
preempt the public and become quite wealthy practically overnight. ;)
I suspect that the main reasons for a fixed (1%~3%) trade capital
allocation are based on a misunderstanding of risk, or an inability to
measure and act on risk properly.
The main reason for capital allocation (money management), is to
control risk to some extent.
Allocation of capital (i.e., exposure to risk), should be done on an
individual security basis. That is, look at individual trade history
for each security, and allocate x% of capital to it according to
historical risk.
For example, a risky/volatile stock may require caution and a smaller
capital outlay, whereas a more stable/trending security with less
historical risk, can cope with a larger trade size.
In other words, don't allocate capital % on hearsay or fixed
percentages. Be smarter, and allocate capital according to individual
risk exposure.
More on this in the current issue of MSTT.
http://www.metastocktips.co.nz
jose '-)
http://www.metastocktools.com
--- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@xxx>
wrote:
>
> 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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