So two main reasons why I put it 30% because generally 20% firstly, if you lose up to maximum 30% there is still have good chance for you to recover back to the original amount, which means that when you have a drawn down of 30%, there is still a good chance you can generally quite quickly recover back to the original 100% and then go even to a higher equity value thereafter.
Secondly, once you start to have a portfolio loss of more than … or draw down of more than 20% to 25%, your psychological issues will start creeping it very significantly, generally for a lot of people. Of course for some very risk averse traders or investors, 20% to 25% might even be too much. For some of those traders who are very aggressive, 20% to 25% might not mean a lot to them because they might even be willing to have a portfolio risk of up to 50% because they know that their strategy works, they are very confident.
Even if they lose 50%, they know that when the good times comes back, they can quickly come back and go back to the original amount again. So my suggestion is generally for most people, having a portfolio risk content at about between 50% to 30% would be more ideal from both a time to recovery perspective, as well as psychological issues perspective.
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