Prudent Risk Management Is The Only True Edge In TRADING

Discussion in 'Risk Management' started by Buy1Sell2, Jul 6, 2015.

Is Prudent Risk Management the only true edge in trading?

  1. Yes

    45 vote(s)
  2. No

    107 vote(s)
  1. loyek590


    yes, no free lunch, my technique is nothing special, its often referred to as anti martingale. A martingaler believes if the last spin was black the next spin will be red. An anti martingaler believes what has gone up will keep going up. And that's how I bet. Which brings us back to prudent money management.

    the most important thing before you start is to clearly define what a minimum and what a maximum postition will be, and it is based on starting account balance and not reduced during drawdown or increased when it is going good.

    for me a min is about 200% of starting balance and a max is about 10 times starting balance, and then there are medium positions that get developed that are somewhere in between. The goal is always to keep your losers your smallest positions and your winners your largest positions. Once a position gets maxed out it is quite a comforting feeling to just ignore it and everyday see your stop losses become more and more irrelevant.

    I use to trade this sytem with no stops and that was more profitable simply due to reduced trading costs, but I was concerned what would happen to my account if I died and my kids had to sort it out. So now I go to sleep with a stop loss on everything. To an outsider my stops seem to have no rhyme or reason, due to adding to positions, some become incredibly tight, like 10 pips, and others can get very wide, like 100 pips away from average price. And some are actually more like trailing stops and will stop me out at a profit (although not much of one and I consider getting stopped out a loss even if it is a profit.)
    Last edited: Aug 9, 2015
    #51     Aug 9, 2015
    jas_in_hbca and Buy1Sell2 like this.
  2. loyek590


    the secret isn't the system. It's just the basic premise, always the same, keep losses short and let profits run. You can add to winners you can add to losers or you can just put it all on the first time, don't matter to me, as long as there is something which keeps losers small and let's winners run.
    #52     Aug 9, 2015
    Buy1Sell2 likes this.
  3. J_Smith


    What determines how much you can lose, and, how much you might win?
    #53     Aug 13, 2015
  4. J_Smith


    Who makes more money, the little shop on the village corner or the big supermarket in the center of the town!

    One of the biggest mistakes a person dabbling in trading can make is to think that he/she can "consistently" have large winners and small losers.

    Those who try would do well to understand this quote.

    “If I am I because you are you, and you are you because I am I, then I am not I and you are not you. But if I am I because I am I, and you are you because you are you, then I am I and you are you.”
    Rabbi Menachem Mendel of Kotzk
    #54     Aug 13, 2015
  5. J_Smith


    I agree that trading is gambling, but trading is not a casino game!

    In order to acquire the required skill sets to trade effectively, a person must gain experience.

    In order to gain experience a person must place both losing and winning trades.

    In order to place both losing and winning trades a trader must have a prudent risk management approach that will allow enough time (trades) for the experiences.

    5% of capital (cash in bank) per trade is way too much.

    1% of available trading capital ( % of cash in bank) is ok for some, depending on market traded and strategy used.

    0.5 % of available trading capital ( % of cash in bank) is best for most.

    Of course, what makes a big difference is how much you have starting out, and if a person uses high leverage as in FX trading, then they are more than likely not employing any risk management at all, and are just throwing loose money at the market in a hope that the might make something, which I think we all know what the likely outcome will be.

    Prudent risk management is not an edge, it is a requirement for successful trading, as there is a big difference between an edge and a requirement.

    An edge would be something like knowing when not to trade, as it removes you from the market during highly volatile periods which equates to high risk.

    Why climb an apple tree and risk breaking your legs, when you can pick the apples off the ground - all you need do is give the tree a little shake first:)

    #55     Aug 13, 2015
    Wingz likes this.
  6. deaddog


    If you cannot define your edge, you don't have one.

    Prudent risk management should be part of your trading plan.

    I believe that having the discipline to follow a trading plan is part of my edge.
    #56     Aug 13, 2015
    zbestoch likes this.
  7. Visaria


    Really? If the right opportunity came along, i would go in 150%.
    #57     Aug 14, 2015
  8. deaddog


    How much are you willing to lose? :)
    #58     Aug 14, 2015
  9. Visaria


    0 since the right opportunity would mean zero risk :D
    #59     Aug 14, 2015
  10. J_Smith


    There are opportunities each and every day, but every trade carries risk.

    If you are talking about being in the right place at the right time, then that of course is a different story, but to go in 150% would be foolish in my opinion, as you might get away with it a rare few times, but one day you will get caught and be one sorry trader.

    Consistency is far better than one hit wonders!
    #60     Aug 14, 2015