How much to risk if there are two signals on the same stock?

Discussion in 'Automated Trading' started by curiousGeorge8, Aug 7, 2014.

  1. We all know the rule of thumb of risking no more than two percent of the capital on one trade. But now suppose you have two strategies which in general are not correlated. Now assume that suddenly these two strategies generate two long signals at the same time on msft. How much would you risk on this trade?

    A 2%
    B 3%
    C 4%
    D It depends

    and what is your reason in choosing so?
  2. dom993


    If these were automated systems of mine, I would trade each signal independent of the other, since they belong to different trading systems.
  3. Redneck


    Sounds like a signal w/ supporting PA (the second system's signal)

    Place the trade – risking your defined amount for 1 trade

    As it is fact – the outcome is uncertain

    This 1 option


    2nd option

    Treat each strategy independently – trade each independently – risking your defined amount for each strategy

    The outcome still remains uncertain


    I dare say most…, certainly not all…, but most.., signals occur with supporting PA (a 2nd… at times a 3rd..., 4th.., even 5th signal)

    What you’re seeing is not unique – nor does it lend more certainty to the outcome


    Of course there is always option 3 - go ape shit crazy and double down

    Get lucky.., then revel in your trading prowess

    Get unlucky.., and never be heard from again

    Tis always a choice

  4. That is what I am doing now, i.e. risking a total 4% on the two trades, but I am having second thoughts about this after a recent loss.

  5. Obviously I wanted to never be heard again:)
  6. dom993


    Why does this bother you more than 2 distinct losses? If your systems have an edge, losses are just the price to pay to get their long term positive expectancy.
  7. I hear what you said. But I am worried that these two strategies are more correlated than the correlation of their daily P&L implies in situations such as adverse market. If these two strategies are more correlated than I thought, then their risks are under-estimated, in which case one should risk total 3% on the two trades.
  8. %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
    Exactly, especially since this good uptrend is really old + extended. Frankly, it may go UP more +get more extended, especially in last quarter, tek trends................................................................Nice thing about being young; one may have time to recover from risking too much. Not a prediction,LOL, but that wisdom.