Risk

Set your risk settings

Risk management in a backtest relies on two aspects: the position type and the risk per trade.

The position type affects how the amount placed on each trade (i.e. position size) is calculated in the backtest.

These settings apply only to trading strategies, where capital evolves dynamically based on the gains and losses generated by each trade.

In summary:

• With a fixed position type, you always place the same fraction of your capital on each trade, regardless of your strategy's exit rules.

• With a dynamic position type, the amount placed on each trade is calculated automatically, so as to always risk the same fraction of your capital if your stop-loss is hit.

• With a custom position type, you define yourself capital and risk management directly in your rules, based on specific conditions (e.g. adjusting risk after a series of wins or losses, dynamic allocation based on an indicator).

Fixed position

A fixed fraction of capital is placed on each trade, regardless of the strategy rules or the distance to the exit price.

Example:

With a fixed risk of 10%, the amount placed on each trade will be 10% of your capital, regardless of the distance to the stop-loss.

Dynamic position

A fixed fraction of capital is risked, which means that if the stop-loss is reached, the loss will always remain the same proportion of capital. This position type absolutely requires using a stop-loss in your strategy's exit rules.

Example:

With a dynamic risk of 1%, no matter the distance between the entry price and the stop-loss, you will never lose more than 1% of capital per trade if your stop-loss is hit.

If your trading strategy does not use a stop-loss and you choose a dynamic position type, the backtest will then apply the logic of a fixed position type.

Custom position

You can define your own risk management rules and position sizing to adapt risk-taking to specific conditions. With this approach, risk management becomes totally flexible, and adapts to the specific rules of your strategy.

Examples :

• "Start with a risk of 0.5%, then decrease it by 10% when a trade is losing and increase it by 5% when a trade is winning."

• "I want to risk 1% of my capital on Tesla stock if the price is below the 200 EMA or 0.5% if the price is above that moving average."