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QuantSchool: Risk per trade vs. portfolio risk

The Dual Layers of Risk Management

Effective trading requires managing risk at both the individual trade level and overall portfolio level simultaneously.

Key Concepts

1. Trade-Level Risk Parameters

Parameter	Standard Practice	QuantWave Enhancement
Max Risk per Trade	1-2% of capital	Volatility-adjusted sizing
Stop-Loss	Technical levels	Probability-based stops
Position Size	Fixed fractional	Forecast-confidence weighted

2. Portfolio-Level Risk Controls

• Total Exposure: 5-15% of capital at risk
• Sector Concentration: Max 20-25% per sector
• Correlation Limits: Net beta < 1.5
• Liquidity Reserve: 10-20% cash buffer

QuantWave Risk Tools

1. Position Size Optimizer

• Calculates max position size based on:
  • Account risk parameters
  • Stop-loss distance
  • Forecast confidence

2. Portfolio Risk Dashboard

• Real-time exposure monitoring
• Stress test simulations
• Correlation heat maps

Implementation Framework

The 5-Step Risk Protocol

1. Set global portfolio risk limit (e.g., 10%)
2. Determine per-trade risk (1-2%)
3. Calculate position sizes using stop distance
4. Verify portfolio correlations
5. Monitor and adjust daily

Advanced Techniques

1. Dynamic Risk Scaling

• Increase position sizes during high-confidence signals
• Reduce during market uncertainty
• Adjust based on performance streaks

2. Tiered Risk Budgeting

• Core positions: 0.5-1% risk
• Tactical positions: 1-2% risk
• Opportunistic: 0.25-0.5% risk

Common Risk Mistakes

• Focusing only on trade-level risk
• Ignoring position correlations
• Overlooking liquidity risk
• Failing to adjust for volatility changes

Performance Metrics

• Risk-adjusted return (Sharpe Ratio)
• Maximum drawdown
• Risk limit compliance
• Win/loss consistency

QuantWave's integrated risk management system provides traders with a complete view from individual trades to overall portfolio exposure. By maintaining discipline at both levels simultaneously, you can pursue returns while keeping risks firmly under control.