← AdvancedLesson 16 · 3:52
How do you size risk across many trades?
Summary
You can size each trade as a small share of your account and explain how the same edge can end in ruin when sized too big. You can spot trades that will fail together and size a whole book by its worst day.
Key terms
- edge
- How far the odds lean your way; it says nothing about how much to risk.
- risk per trade
- The share of your account put at risk on one trade.
- ruin
- Losing so much that you cannot come back.
- worst-day sizing
- Sizing the whole book so that a chosen crash day costs no more than a set share of the account.
Check yourself
Answer each question to see why the right answer is right.
1. In the example, 6 trades in 10 win, and a win gains what was risked while a loss loses it. What does this edge not tell you?
2. The same five paths of 100 trades are run at 2% and at 50% risk per trade. What happens?
3. You risk half of $100. A win takes it to $150, then a loss of half takes it to $75. What does this show?
4. You sell ten $93 puts on ten made-up stocks. On a normal day they net plus $61. On a crash day every stock drops 15% and volatility doubles. What happens?
5. You decide the crash day may cost at most 2% of your $100,000 account. How many of those puts do you hold?
Finished the video and the quiz? .