VanTharp's Commentaries
Risk from Peak Performance Home Study
Q: I purchased both courses, and have a question about risk for Dr Tharp. I'm making my way through book 1 in Peak Performance, just re-read the chapter on Risk.
My question: Suppose I put on a stop order, so that I risk no more than 1% of capital on any single trade. The predicted risk is now 1%. E.g. 100,000.00 account, position size 10,000.00, set stop at 1000.00 (below for long, above for short).
But, the market could crash, and move through by stop, and it might take a long time to get filled (since the ʽbig boysʼ have good deals with the floor traders, if itʼs an exchange traded security). My actual risk might be much larger than 1%, but is usually going to be somewhat larger, due to fills and scalping.
Can you suggest a more formal way to estimate what the actual risk is, for a given type of security, beforehand i.e. knowing we canʼt always get our exact stop price, and sometimes it will be quite worse?
A: This is why a system is a distribution of R-multiples. Your goal is a loss of 1R or less (if you lose), but positions do go through stops and even gap through stops in a major way.
However, your example is huge and how did you get your position size at 10K? How about, 100K account, 1% risk = $1000. Stop equals $5. Position size = 200.
Tags: economic-event
