Investment Insights Portfolio Strategies

Explore how trade risk management, using a simple three-part process, can help you size your positions and reduce the risk of loss.
CIBC Investor’s Edge Jan. 23, 2024 7-minute read
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A framework for trade risk management

  5 positions 10 positions 15 positions
Portfolio size $100,000 $100,000 $100,000
Position size $20,000 $10,000 $6,667
10% stop $2,000 $1,000 $667
Trade risk $2,000 divided by $100,000
equals
2%
$1,000 divided by $100,000
equals
1%
$667 divided by $100,000
equals
0.67%

Exploring ranges for trade risk management

Trade risk: 1.25% to 2.50%

Stops: 5% to 10%

Positions: 5 to 20

What influences trade risk management?

Risk tolerance

Correlation

Key takeaways

1 Examples of ranges are adapted from Mark Minervini, Think and Trade Like a Champion (Access Publishing Group, 2017).

Knowledge is your most valuable asset

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