Ed Seykota’s Trading Style Part-II

In Continuation With the Previous Ed Seykota’s Trading Style Part-I
Risk Below 5% of Equity Per Trade

• I intend to risk below 5% on a trade, allowing for poor executions. Occasionally I have taken losses
  above that amount when major news caused a thin market to jump through my stops.
• Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.
• Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage Fred and lead to feeling-justifying drama.
• Betting more boldly produces more volatility. Good traders are familiar with both and keep their trading well within their tolerances.
• I use a rule of thumb that you place less than 10% of your liquid net worth at risk and that you stop your losses at 50% of that – so you have net exposure of 5% of your liquid net worth. If you have a net worth of 1.5 million, you might have liquid net worth (cash, stocks, bonds, etc) of, say, about 500,000 (a wild guess). Then you might place $50,000 of that at risk and cut your loss if you lose $25,000.

Continue Reading