How does one reconcile the apparent contradiction between most traders in Market Wizards for example who recommend risking no more than 2-5% of your capital on any trade and the comments of George Soros who says that the worst mistake a trader can make is to not be ‘bold’ enough when you are right, to not ‘really go for it’?
Is he saying one needs to just hold on to winners longer than one normally might or (what I think he is saying) to put far more capital at risk than normal when you are right?
I think risking 2-5% per trade is what Soros was getting at when he made that comment a while back. Market Wizards was written a long time ago when the environment was thin wrt CTAs – about the same time Soros made that quote. The industry is a lot bigger and more mature, as is the Institutional acceptance of placing funds in the Managed Futures asset class.
Nowadays, you’d get shot for that type of risk if you handle public money. No one needs a hero, just a competent risk manager. Putting it in historical perspective, I think the “2-5%” aspect became material when you look at traders who scale into trades, or pyramid, for example. If one risks between 0.50% and 1% per trade and gets long or short up to 4 risk units, you’d have between 2 and 4 % exposure if you placed your stops correctly.
I don’t know Soros to be a mechanized system trader, but like Jim Rogers, a fundamental trader. That said, it’s entirely possible that he himself legged into trades, long term trends, where he added to winning positions by the structure of the chart using support and resistance for risk management. That would be very different than measuring entries and exits by ATR. I’ve traded like this at times with outright directional trades as well as spreads.