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
- Set global portfolio risk limit (e.g., 10%)
- Determine per-trade risk (1-2%)
- Calculate position sizes using stop distance
- Verify portfolio correlations
- 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.