Custom Risk Strategies Cheatsheet

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 Custom Risk Strategies

• Straight % of Capital — Limit each loss to a predefined % of total capital.

• Capital Lot Sizing — Trade size adjusted to your total lots of capital.

• Straight $ Risk — Limit the amount of risk to a specific dollar amount.

• Volatility Based Risk — Adjusted risk based on the markets volatility

• Larry Williams Straight Risk — Control the amount of risk based on your worst losses.

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Straight % of Capital Strategy

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 Straight % Of Capital Strategy

• Straight % is the most common strategy — If you are confused or unsure about which strategy to use, stick with this one for
now.

• This strategy will tailor your loss limit to a predefined % of total capital — Calculate how much you risk per trade by
multiplying your total capital by a predetermined % that you are willing to risk. ($20,000 x .03 = $600)

• You customize this strategy on a per trade basis or as a daily limit — 2% per trade or 5% per day.

• You risk will adjust as your account grows or suffers drawdown — Creating a sustainable capital management strategy while
also helping to control the risk on each trade.

• This strategy will be a difficult for small accounts — Typically with this strategy you will be missing many trades because they
will not fit into your risk profile.

• Key Metrics — Account size & predefined % you are willing to risk per trade

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Total Losses Sustained On A % Basis

% of Total Capital Total Losses Sustained

.05 1,058

1% 528

2% 263

3% 147

4% 130

5% 104

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 Straight % of Capital Strategy Target: 2469.00
Total capital x straight percentage ÷ trade risk = position size

$20,000 (total capital) x .03 (Straight %) ÷ $250 (trade risk) = 2

contracts (positions size)

Entry: 2459.00

$250 Risk

Stop: 2454.00

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Capital Lot Sizing Strategy

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 Capital Lot Sizing Strategy

• This strategy will trade size based on how many predefined lots of capital you have — If a lot of capital is $6,000 and you
have a $20,000 account you would be trading 3 units of size.

• Calculate your lot of capital — Take you largest loss and divide it by the % of your account you are willing to lose. ( 1,800 ÷ .30
= $6,000). For every $6,000 you would risk one unit of size.

• You calculate this strategy by taking your total capital and dividing it by the set lot of capital — Account balance ÷ set lot of
capital = position size.

• This strategy gives you a lot of freedom — You can increase or decrease the set capital per lot at your discretion. You can
lower the amount to be more aggressive and raise the amount to be more conservative.

• This strategy is one the fastest ways to increase the size you are using — As you grow in size, it will require less growth to
“unlock” the next lot.

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Capital Lot Sizing Strategy Target: 2469.00
Total capital ÷ lot of capital = position size

($20,000 ÷ $6,000 = 3 contracts)

Entry: 2459.00

$250 Risk

Stop: 2454.00

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 Capital Lot Sizing Strategy - Futures
Trading size adjusted to how many lots of capital you have

● Position Size = total capital ÷ lot of capital.

$1,142
Per unit
● Lot of capital = largest $ loss ÷ % of total account you $1,333
are willing to lose. Per unit

● Example: $1,600
Per unit
Largest loss = $1,600 $2,000
Willing to lose 20% of total $20,000 account Per unit
1 lot of capital = $8,000 $2,600
Position size = 2 contracts
$4,000 Per unit
Per unit
Increase size = 1 contract per $8,000 of growth

● This strategy does not manage individual trade risk. Trade Size 2 Units 3 Units 4 Units 5 Units 6 Units 7 Units

● Key Metrics - total capital & lot size.

Account Size $20,000 $24,000 $32,000 $40,000 $48,000 $56,000

Contribution Per Unit For Growth

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 Capital Lot Sizing Strategy - Stocks
Trading size adjusted to how many lots of capital you have

● Position Size = total capital ÷ lot of capital.

$3.88
Per share
● Lot of capital = largest trade loss ÷ % of total account $4.12
you are willing to lose on a single trade. Per share

● Example: $4.40
Per share
Largest trade loss = $2 $4.71
Willing to lose 3% of total $20,000 account. Per share
1 lot of capital = $66 $5.07
Position size = 303 shares
$5.50 Per share
Per share
Increase size = 25 share per $1,650 of growth

● This strategy does not manage individual trade risk. Trade Size 300 shares 325 Units 350 shares 375 shares 400 shares 425 shares

● Key Metrics - total capital & lot size.

Account Size $20,000 $21,650 $23,300 $24,950 $26,600 $28,250

Contribution Per Share For Growth

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 Capital Lot Sizing Strategy - Foreign Currencies
Trading size adjusted to how many lots of capital you have

● Position Size = total capital ÷ lot of capital.

$1,660
Per lot
● Lot of capital = largest trade loss ÷ % of total account $1,904
you are willing to lose on a single trade. Per lot

● Example: $2,221
Per lot
Largest trade loss = 40 pips $2,660
Willing to lose 3% of total $20,000 account. Per lot
1 lot of capital = $1,333 $3,332
Position size = 1.5
$4,443 Per lot
Per lot
Increase size = .5 lot per $6,665 of growth

● This strategy does not manage individual trade risk. Trade Size 1.5 Lots 2 Lots 2.5 Lots 3 Lots 3.5 Lots 4 Lots

● Key Metrics - total capital & lot size.

Account Size $20,000 $26,665 $33,330 $39,995 $46,660 $53,325

Contribution Per Lot For Growth

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Straight $ Risk Strategy

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 Straight $ Risk Strategy

• Straight dollar risk will limit the amount of risk to a specific dollar amount — E.g. you risk $825 per trade.

• Calculate Straight $ Risk — Decide on the total number of losers you want to withstand before you account reaches $0. You
should never go below 20. Total account ÷ total loss = Straight $ Risk. E.g. $20,000 ÷ 40 = $500

• Using this strategy, you will adjust the size of your position to fit the dollar risk — Straight $ risk ÷ trade risk = position size.

• You will adjust your Straight $ Risk as your account grows — You will increase size during gains and you will not reduce size
when in periods of drawdown.

• This strategy is great for scaling a small account — If you can keep your expectancy up this strategy will allow you increase
size quickly.

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 Straight $ Risk Strategy Target: 2569.00
Straight $ Risk ÷ individual trade risk = Position Size

$500 ÷ $250 = 2 contracts

Entry: 2559.00

$250 Risk

Stop: 2554.00

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 Straight $ Risk - Futures
Risk limited to a specific dollar amount

● Position Size = straight $ risk ÷ trade risk.

● Straight $ Risk = total account ÷ total number of losses

you can handle.

● Example:
Account size = $20,000
Total losses before $0 = 40
Straight $ risk = $500
Position size = 2 contracts ($250 trade risk)
Increase size = $60 of risk per $2,500 of growth

● This strategy manages the individual trade risk. Trade Risk $500 $560 $620 $680 $750 $800

● You will adjust you straight $ risk as your total account

size increases. You will not adjust during drawdown. Account Size $20,000 $22,500 $25,000 $27,500 $30,000 $32,500

● Key Metrics - total capital & number of losses you can

handle
Straight $ Risk Adjusted With Account Size

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 Straight $ Risk - Stocks
Risk limited to a specific dollar amount

● Position Size = straight $ risk ÷ trade risk.

● Straight $ Risk = total account ÷ total number of losses

you can handle.

● Example:
Account size = $20,000
Total losses before $0 = 40
Straight $ risk = $500
Position size = 250 shares ($2 trade risk)
Increase size = $60 of risk per $2,500 of growth

● This strategy manages the individual trade risk. Trade Risk $500 $560 $620 $680 $750 $800

● You will adjust you straight $ risk as your total account

size increases. You will not adjust during drawdown. Account Size $20,000 $22,500 $25,000 $27,500 $30,000 $32,500

● Key Metrics - total capital & number of losses you can

handle
Straight $ Risk Adjusted With Account Size

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 Straight $ Risk - Foreign Currencies
Risk limited to a specific dollar amount

● Position Size = straight $ risk ÷ trade risk.

● Straight $ Risk = total account ÷ total number of losses

you can handle.

● Example:
Account size = $20,000
Total losses before $0 = 40
Straight $ risk = $500
Position size = 1.25 lots (40 pip risk)
Increase size = $60 of risk per $2,500 of growth

● This strategy manages the individual trade risk. Trade Risk $500 $560 $620 $680 $750 $800

● You will adjust you straight $ risk as your total account

size increases. You will not adjust during drawdown. Account Size $20,000 $22,500 $25,000 $27,500 $30,000 $32,500

● Key Metrics - total capital & number of losses you can

handle
Straight $ Risk Adjusted With Account Size

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Volatility Based Risk Strategy

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 Volatility Based Risk Strategy

● Volatility Based Risk Strategy will adjust the amount of risk based on the markets volatility — E.g. 10-Day average range is
28 pts = 1 unit of size. (ATR if you are swing trading)

● Using this strategy, you will adjust the size of your position based on the market volatility — Straight $ risk ÷ Market
volatility. Calculate your Straight $ Risk by taking your total capital ÷ total number of losses. ($50,000 ÷ 40= $1,250.
Calculate the market volatility multiplying ADR by value per point.

● This strategy does not manage individual trade risk — It does not matter if the trade risk is $50 or $500 you will be using the
same size.

● You will adjust your size based on market volatility — You will increase size during periods of low volatility and reduce size
when markets expand volatility.

● This strategy will alienate small accounts — The example used was the ES, a very large product but even with less extreme
examples you will need a large account.

● This is the strategy used by the Turtle Traders.

● Key metrics — Straight $ risk & ADR

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 Volatility Based Risk Strategy
Calculate the market volatility by taking the ADR x value per point.
**15.75 (ADR) x $50 (per point value) = $800 (market volatility)

Calculate your risk by taking your Straight $ Risk ÷ Market Volatility

**$1,500 ÷ $800 = 1.8

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Volatility Based Risk Strategy Target: 2569.00
Straight $ Risk ÷ market volatility = Size

1.5 units of risk

Entry: 2559.00

$250 Risk

Stop: 2554.00

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Larry Williams Straight Risk Strategy

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 Larry Williams Straight Risk Strategy

● Williams Straight Risk will look to adjust the amount of risk based on your worst losses — E.g. Your daily loss limit is $2,000
and you largest single loss is $600 you would trade 3 units of risk.

● Using this strategy, you will need a max per trade loss and a daily stop loss — E.g. risk $600 per trade and daily loss is 10% of
my account. Your max per trade loss should = your largest single loss (actual or intended). Your daily stop loss should be how
much of your account you are willing to lose per day or it should be based on a max number of loss rule.

● This strategy does not manage individual trade risk — It does not matter if the trade risk is $50 or $500 you will be using the
same size.

● This strategy will provide exponential growth while offering protection during times of drawdown — You will increase size
as your account grows and reduce size when it drops.

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 Williams Straight Risk Strategy Target: 2569.00
Calculate the size of your position by taking your daily stop loss ÷ largest loss
** $2,000 ÷ $600 = 3

Entry: 2559.00

$250 Risk

Stop: 2554.00

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 Williams Straight Risk - Futures
Risk adjusted to your worst losses

● Position Size = daily stop loss ÷ largest single $ loss.

● Daily stop loss = max % of total account to risk per day. $1,333
Per unit
● Largest single loss - largest actual loss or expected.
$1,600
Per unit
● Example: $2,000
Account size = $20,000 Per unit
Daily stop loss = .05 ($1,000) $2,600
Largest single $ loss = $400
$4,000 Per unit
Per unit
Position size = 2.5 contracts (ES)
Increasing size = 1 contract per $8,000 of growth
Trade Size 2 Units 3 Units 4 Units 5 Units 6 Units 7 Units
● This strategy does not manage the individual trade risk.

● Key metrics - Daily stop loss & largest single loss Account Size $20,000 $24,000 $32,000 $40,000 $48,000 $56,000

Contribution Per Unit For Growth

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 Williams Straight Risk - Stocks
Risk adjusted to your worst losses

● Position Size = daily stop loss ÷ largest single trade loss.

$6.60
Per share
● Daily stop loss = max % of total account to risk per day. $7.50
Per share
● Largest single loss - largest actual loss or expected.
$8.57
Per share
● Example: $10.00
Account size = $20,000 Per share
Daily stop loss = .05 ($1,000) $12.00
Largest single trade loss = $3
$13.50 Per share
Per share
Position size = 333 shares ($3 largest trade risk)
Increasing size = 75 shares per $4,500 of growth
Trade Size 333 shares 375 shares 450 shares 525 shares 600 shares 675 shares
● This strategy does not manage the individual trade risk.

● Key metrics - Daily stop loss & largest single loss Account Size $20,000 $22,500 $27,000 $31,500 $36,000 $45,500

Contribution Per Share For Growth

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 Williams Straight Risk - Foreign Currencies
Risk adjusted to your worst losses

● Position Size = daily stop loss ÷ largest single trade loss.

$157
Per lot
● Daily stop loss = max % of total account to risk per day. $178
Per lot
● Largest single loss - largest actual loss or expected.
$206
Per lot
● Example: $243
Account size = $5,000 Per lot
Daily stop loss = .03 ($150) $297
Largest single trade loss = 40 Pips
$382 Per lot
Per lot
Position size = 3.75 lots (40 Pip largest trade risk)
Increasing size = $1,340 of growth
Trade Size 3.5 Lots 4.5 Lots 5.5 Lots 6.5 Lots 7.5 Lots 8.5 Lots
● This strategy does not manage the individual trade risk.

● Key metrics - Daily stop loss & largest single loss Account Size $5,000 $6,000 $7,340 $8,680 $10,020 $11,360

Contribution Per Lot For Growth

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 Custom Risk Strategies Cheatsheet

Points of Interest Straight % of Capital Unit of Capital Sizing Straight $ Risk Volatility Based Risk Williams Straight Risk

Size + when growing

Size - when in
drawdown
Manages individual
trade risk
Great for scaling
small accounts
Great for being
conservative

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Let’s Get After It!!

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