Lesson Overview

Allocation Per Trade

At the heart of all high probability systems there is a requirement that you have small positions with every trade. If you learn how to trade small you almost completely remove the risk of blowing up your account.

If each individual trade is small you can withstand a complete loss on that particular trade if the stock makes a huge move in one direction or another. This protects us from the so called "black swan" events that will happen again in the future - count on it.

Contrary to popular belief though, studies have been shown to prove that actually making smaller trades is more successful regardless of your win rate.

In other words, if you have two traders who make the exact same amount of trades and are winning at the same rate the person who trades smaller ends up with a higher profit at the end of the year.

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  • Correct you got it!

  • Jhun

    Very very helpful but one questions. If my account is 10000 and I use the 5% risk allocation and have 10 underline in my portfolio that will amount to approximately 5000 , is this alright??.

  • Yes for small accounts always turn strangles into iron condors and straddles into iron butterflies. Yes we use BP Effect for risk sizing.

  • In this case it does – but in some cases I’ve seen where they don’t. Either way commissions ultimately end up as a very small portfolio of leakage from the account.

  • Saurabh Moitra

    Kirk thank you for the awesome content. Unfortunately, I trade the indian markets and will not benefit from the pro/elite section but I really find the videos useful. I have a question: I started trading options recently – more like flirting with naked calls and puts. I have made money in long term cash and carry bets of 3+ months on stocks (20% returns on average) but options are tricky and I always end up loosing. I think the reason is shallow knowledge of technical analysis. Is this something that you folks already cover in your videos or have plans to?

  • Ang Yanlin

    Hi Kirk, thanks for the video! Just want to clarify on this: If my account size is 10,000, and allocate 5% to risk, does that mean that the risk of all my trades should add up to $500? If that is the case, how can I determine how many trades I should make ideally? (eg I can make one trade with a risk of $500, or I can make 10 trades with a $50 risk each and so on.)

  • Correct 1-5% risk per ticker.

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