How to apply One Percent Risk on future?

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oem7110
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How to apply One Percent Risk on future?

Post by oem7110 » Wed Nov 07, 2012 12:15 am

Future has a leverage at 10 times, which means that you invest $1 and trades like $10 [Corrected]. I would like to know how to apply One Percent Risk in this case.

Does anyone have any suggestions?
Thanks in advance for any suggestions

The one percent risk rule is calculated as follows:
•Maximum Capital = Account Size / 100
•Trade Size = Maximum Capital / ((Entry - Stop Loss) x Point Value)
Last edited by oem7110 on Wed Nov 07, 2012 4:58 am, edited 1 time in total.

AFJ Garner
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Post by AFJ Garner » Wed Nov 07, 2012 4:43 am

I think there is a bit of muddled thinking here somewhere. First of all, as I am sure you realize, the statement "futures has a leverage at 10 times" is misleading. Leverage varies widely depending on market conditions and the particular instrument you are trading. In any event, in my book leverage of ten times means that if you "invest" $1 it "trades like" $10, not $20. The answer to your question is simple arithmetic. If you wish to risk 1% of your account value per position the entry risk multiplied by the point value must not exceed said 1%. If the contract is too big (the point value too high) then don't take the trade.

Am I missing something here?

oem7110
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Post by oem7110 » Wed Nov 07, 2012 5:02 am

AFJ Garner wrote: ... If you wish to risk 1% of your account value per position the entry risk multiplied by the point value must not exceed said 1%.
...
Would it be possible to convert following formula using percentage instead of point value?

Capital : 100000
Stop Loss: 1%
Do you have any suggestions on how to determine the Trade Size in term of percentage of Capital?
Thanks you very much for any suggestions

The one percent risk rule is calculated as follows:
•Maximum Capital = Account Size / 100
•Trade Size = Maximum Capital / ((Entry - Stop Loss) x Point Value)

AFJ Garner
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Post by AFJ Garner » Wed Nov 07, 2012 6:12 am

Sorry, maybe I am being dense but I can't see your problem. You can not work out the risk on a futures contract without using the point value in some shape or form. If you want to use the notional value (eg currently $88,000 on one contract of Crude) fine. But you still need the point value to get there in the first place.

gunter
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Post by gunter » Wed Nov 07, 2012 8:21 am

Why don't you see if you can find the original Turtle Trading rules online? There is a very good explanation of how to size positions with futures.

Another option would be Way of the Turtle which also has those same rules in it.

oem7110
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Post by oem7110 » Wed Nov 07, 2012 9:40 am

AFJ Garner wrote:... If you want to use the notional value (eg currently $88,000 on one contract of Crude) fine. But you still need the point value to get there in the first place.
1% of 88000 = 880 points, I will use the entry leve of price as a reference to determine the number of points for stop loss.
Do you have any suggestions on how to work out the Trade Size in term of percentage?

the leverage will change when price moves up or down, but as a simple approach I use the entry level of leverage as a reference.

Do you have any suggestions?
Thanks everyone very much for any suggestions

oem7110
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Post by oem7110 » Wed Nov 07, 2012 9:40 am

gunter wrote:Why don't you see if you can find the original Turtle Trading rules online? There is a very good explanation of how to size positions with futures.

Another option would be Way of the Turtle which also has those same rules in it.
Do you know the link for your reference?
Thanks everyone very much for any suggestions

gunter
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Post by gunter » Wed Nov 07, 2012 9:42 am


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