Version: 1.0 (Current)

Risk Parameters Schema

This document provides the complete schema reference for the riskParameters configuration object. Risk parameters define position limits, loss limits, and risk-reward requirements to protect capital.

Overview

Risk parameters are part of Step 5 of algorithm configuration. They control:

Maximum position size per trade
Stop loss and take profit percentages
Maximum daily loss limits
Maximum number of open positions
Minimum risk-reward ratio

Schema Structure

interface RiskParameters {
  maxPositionSize: number
  stopLoss: number
  takeProfit?: number
  maxDailyLoss: number
  maxOpenPositions: number
  riskRewardRatio: number
}

Field Descriptions

`maxPositionSize`

Type: number
Required: Yes
Range: 0.01 to 100
Unit: Percentage of account balance
Description: Maximum percentage of account that can be allocated to a single position
Recommended: 2 to 10
Example: 5.0

Purpose: Prevents over-concentration in a single position.

Calculation:

Max Position Value = Account Balance × (maxPositionSize / 100)

Examples:

With ₹100,000 account:

maxPositionSize: 5.0 → Maximum ₹5,000 per position
maxPositionSize: 10.0 → Maximum ₹10,000 per position

Interaction with Position Sizing:

If position sizing method calculates larger size, it's capped at maxPositionSize
Acts as a safety limit regardless of sizing method

Risk Profiles:

// Conservative
{
  "maxPositionSize": 2.0
}

// Moderate
{
  "maxPositionSize": 5.0
}

// Aggressive
{
  "maxPositionSize": 10.0
}

`stopLoss`

Type: number
Required: Yes
Range: 0.1 to 50
Unit: Percentage
Description: Required stop loss percentage for risk-based position sizing
Recommended: 1 to 5
Example: 2.0

Purpose:

Used in risk-based position sizing calculations
Ensures minimum stop loss is set
Validates exit conditions

Usage in Risk-Based Sizing:

Risk Amount = Account Balance × Risk Percentage
Stop Distance = Entry Price × (stopLoss / 100)
Position Size = Risk Amount / Stop Distance

Example:

{
  "stopLoss": 2.0
}

With ₹100,000 account, 1.5% risk, ₹500 entry:

Risk Amount = ₹100,000 × 1.5% = ₹1,500
Stop Distance = ₹500 × 2% = ₹10
Position Size = ₹1,500 / ₹10 = 150 shares

Strategy-Specific Recommendations:

Scalping: 0.5-1%
Day Trading: 1-2%
Swing Trading: 2-5%
Position Trading: 5-10%

`takeProfit`

Type: number
Required: No
Range: 0.1 to 100
Unit: Percentage
Description: Optional take profit percentage for validation
Recommended: 2 to 10
Example: 4.0

Purpose:

Validates exit conditions have reasonable profit targets
Used in risk-reward ratio calculations
Ensures profitable strategy design

Example:

{
  "takeProfit": 4.0
}

With 2% stop loss and 4% take profit:

Risk-Reward Ratio = 4% / 2% = 2:1

Recommended Values:

Should be at least equal to stopLoss (1:1 ratio)
Typically 2-3x stopLoss for good risk-reward
Higher for swing/position trading (5-20%)

`maxDailyLoss`

Type: number
Required: Yes
Range: 100 to 10000000
Unit: Currency (₹)
Description: Maximum loss allowed per day before circuit breaker activates
Recommended: 1-5% of account balance
Example: 5000

Purpose:

Protects against catastrophic losses
Prevents emotional trading after losses
Implements circuit breaker system

Circuit Breaker Behavior: When daily loss reaches maxDailyLoss:

All active algorithms are paused
No new positions can be opened
Existing positions remain open
Resets at start of next trading day

Calculation:

Daily Loss = Sum of all closed position P&L for the day
If Daily Loss >= maxDailyLoss:
  Trigger Circuit Breaker

Example:

{
  "maxDailyLoss": 5000
}

With ₹100,000 account:

maxDailyLoss: ₹5,000 (5% of account)
After losing ₹5,000 in a day, all algorithms pause
Can resume trading next day

Risk Profiles:

// Conservative (1-2% of account)
{
  "maxDailyLoss": 2000  // ₹100k account
}

// Moderate (3-5% of account)
{
  "maxDailyLoss": 5000  // ₹100k account
}

// Aggressive (5-10% of account)
{
  "maxDailyLoss": 10000  // ₹100k account
}

Best Practices:

Set based on account size (1-5%)
Consider trading style (scalpers need lower limits)
Account for multiple algorithms running simultaneously
Review and adjust based on performance

`maxOpenPositions`

Type: number
Required: Yes
Range: 1 to 50
Description: Maximum number of positions that can be open simultaneously
Recommended: 3 to 10
Example: 5

Purpose:

Prevents over-trading
Manages portfolio concentration
Controls margin usage
Limits exposure

Behavior:

When limit is reached, no new positions can be opened
Existing positions can still be closed
Limit applies per algorithm (not account-wide)

Example:

{
  "maxOpenPositions": 5
}

Algorithm can have maximum 5 positions open at once.

Considerations:

Account Size:

Small accounts (< ₹1L): 1-3 positions
Medium accounts (₹1L-10L): 3-10 positions
Large accounts (> ₹10L): 10-50 positions

Strategy Type:

Scalping: 1-3 (quick in/out)
Day Trading: 3-5 (active management)
Swing Trading: 5-10 (longer holds)
Position Trading: 10-20 (diversification)

Margin Requirements:

Intraday: Higher leverage, can handle more positions
Delivery: Full capital required, fewer positions
Futures/Options: Margin-based, moderate positions

Risk Profiles:

// Conservative
{
  "maxOpenPositions": 3
}

// Moderate
{
  "maxOpenPositions": 5
}

// Aggressive
{
  "maxOpenPositions": 10
}

`riskRewardRatio`

Type: number
Required: Yes
Range: 1.0 to 10.0
Description: Minimum risk-reward ratio required for trades
Recommended: 2.0 to 3.0
Example: 2.0

Purpose:

Ensures profitable strategy design
Validates exit conditions
Enforces disciplined trading

Calculation:

Risk-Reward Ratio = Potential Profit / Potential Loss
                  = (Take Profit - Entry) / (Entry - Stop Loss)

Example:

{
  "riskRewardRatio": 2.0
}

With ₹500 entry:

Stop Loss: ₹490 (₹10 risk)
Take Profit: ₹520 (₹20 reward)
Ratio: ₹20 / ₹10 = 2:1 ✅

Minimum Win Rate Required:

For break-even (after costs):

Win Rate = 1 / (1 + Risk-Reward Ratio)

Risk-Reward	Min Win Rate	Example
1:1	50%	Need to win half the time
2:1	33%	Need to win 1 in 3 trades
3:1	25%	Need to win 1 in 4 trades
5:1	17%	Need to win 1 in 6 trades

Recommended Ratios:

Minimum: 1:1 (break-even after costs)
Good: 2:1 or 3:1 (profitable with moderate win rate)
Excellent: 5:1+ (profitable with low win rate)

Strategy Considerations:

High win rate strategies (60%+): Can use 1:1 or 1.5:1
Medium win rate strategies (40-60%): Use 2:1 or 3:1
Low win rate strategies (<40%): Use 3:1 or higher

Complete Examples

Conservative Profile

{
  "maxPositionSize": 2.0,
  "stopLoss": 1.0,
  "takeProfit": 3.0,
  "maxDailyLoss": 2000,
  "maxOpenPositions": 3,
  "riskRewardRatio": 3.0
}

Characteristics:

Small position sizes (2% max)
Tight stop loss (1%)
High risk-reward (3:1)
Low daily loss limit (2% of ₹100k account)
Few positions (3 max)
Suitable for: Beginners, small accounts, volatile markets

Moderate Profile

{
  "maxPositionSize": 5.0,
  "stopLoss": 2.0,
  "takeProfit": 4.0,
  "maxDailyLoss": 5000,
  "maxOpenPositions": 5,
  "riskRewardRatio": 2.0
}

Characteristics:

Medium position sizes (5% max)
Standard stop loss (2%)
Good risk-reward (2:1)
Moderate daily loss limit (5% of ₹100k account)
Moderate positions (5 max)
Suitable for: Experienced traders, medium accounts, normal markets

Aggressive Profile

{
  "maxPositionSize": 10.0,
  "stopLoss": 3.0,
  "takeProfit": 6.0,
  "maxDailyLoss": 10000,
  "maxOpenPositions": 10,
  "riskRewardRatio": 2.0
}

Characteristics:

Large position sizes (10% max)
Wider stop loss (3%)
Standard risk-reward (2:1)
High daily loss limit (10% of ₹100k account)
Many positions (10 max)
Suitable for: Professional traders, large accounts, trending markets

Scalping Profile

{
  "maxPositionSize": 5.0,
  "stopLoss": 0.5,
  "takeProfit": 1.0,
  "maxDailyLoss": 3000,
  "maxOpenPositions": 2,
  "riskRewardRatio": 2.0
}

Characteristics:

Tight stops (0.5%)
Quick profits (1%)
Low daily loss (3% of ₹100k account)
Few positions (2 max, quick turnover)
High frequency trading

Swing Trading Profile

{
  "maxPositionSize": 8.0,
  "stopLoss": 5.0,
  "takeProfit": 15.0,
  "maxDailyLoss": 8000,
  "maxOpenPositions": 8,
  "riskRewardRatio": 3.0
}

Characteristics:

Wider stops (5%)
Larger profits (15%)
Higher daily loss (8% of ₹100k account)
More positions (8 max, longer holds)
Lower frequency trading

Validation Rules

General Validation

All required fields must be present
All values must be within specified ranges
takeProfit should be greater than stopLoss (if specified)

Specific Validations

maxPositionSize:

Must be between 0.01 and 100
Should not exceed 20% for most strategies
Warning if > 10% (high risk)

stopLoss:

Must be between 0.1 and 50
Should be appropriate for strategy type
Warning if < 0.5% (too tight) or > 10% (too wide)

takeProfit:

Must be between 0.1 and 100
Should be >= stopLoss for positive risk-reward
Warning if < stopLoss (negative risk-reward)

maxDailyLoss:

Must be between 100 and 10,000,000
Should be 1-10% of account balance
Warning if > 10% of account (very aggressive)

maxOpenPositions:

Must be between 1 and 50
Should consider account size and margin
Warning if > 20 (difficult to manage)

riskRewardRatio:

Must be between 1.0 and 10.0
Should be at least 1.5 for profitability
Warning if < 1.5 (requires very high win rate)

Risk Management Best Practices

1-2% Risk Rule

Never risk more than 1-2% of account on a single trade:

{
  "maxPositionSize": 5.0,
  "stopLoss": 2.0
}

With risk-based sizing at 1.5%, actual risk per trade is 1.5%.

Portfolio-Level Risk

Consider total exposure across all positions:

Total Risk = Number of Positions × Risk Per Position

With 5 positions at 1.5% risk each:

Total Risk = 5 × 1.5% = 7.5%

Correlation Considerations

Avoid multiple positions in highly correlated symbols
Diversify across sectors and asset classes
Monitor portfolio beta and correlation

Circuit Breaker System

maxDailyLoss acts as circuit breaker
Prevents emotional trading after losses
Allows cool-down period
Protects against cascading failures

Position Sizing Hierarchy

Position Sizing Method calculates size
maxPositionSize caps the size
Risk Parameters validate the trade
Margin requirements apply
Final position size determined

Algorithm Structure - Complete algorithm schema
Position Sizing Schema - Position sizing configuration
Exit Conditions Schema - Exit rules configuration
Risk Management Principles - Detailed risk management guide
How to Configure Risk Parameters - Step-by-step guide

Overview​

Schema Structure​

Field Descriptions​

maxPositionSize​

stopLoss​

takeProfit​

maxDailyLoss​

maxOpenPositions​

riskRewardRatio​

Complete Examples​

Conservative Profile​

Moderate Profile​

Aggressive Profile​

Scalping Profile​

Swing Trading Profile​

Validation Rules​

General Validation​

Specific Validations​

Risk Management Best Practices​

1-2% Risk Rule​

Portfolio-Level Risk​

Correlation Considerations​

Circuit Breaker System​

Position Sizing Hierarchy​

Related Documentation​

Overview

Schema Structure

Field Descriptions

`maxPositionSize`

`stopLoss`

`takeProfit`

`maxDailyLoss`

`maxOpenPositions`

`riskRewardRatio`

Complete Examples

Conservative Profile

Moderate Profile

Aggressive Profile

Scalping Profile

Swing Trading Profile

Validation Rules

General Validation

Specific Validations

Risk Management Best Practices

1-2% Risk Rule

Portfolio-Level Risk

Correlation Considerations

Circuit Breaker System

Position Sizing Hierarchy

Related Documentation