Prudent Risk Management Is The Only True Edge In TRADING

Silly.
And won't help anybody's trading -- including yours.

 

Risk mgmt is something you have absolute control over & I consider my edge to be the aggregate of all the things I have control over. Risk mgmt is a very large part of my edge.

"I compile statistics on my traders. My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger." Steve Cohen

 

My definition is a price action that has been proven to be correct in it's directional call >= 65% of the time when backtested in >200 simulated trades. For me, correctness is the lynchpin of profitability, and that has to be scientifically proven. Why? Because repeatability is the very definition of science.

But hey, why listen to me, I haven't found it, and am just a breakeven trader.

 

Isn't Cohen more of an investor than a day trader? I agree with risk management being more of an edge in investing. How? I've used pyramiding, averaging up, averaging down and other accumulation techniques in longer term investments. I would still say my choice of which security to purchase based on fundamental analyses is the bigger edge. I would also "manage" the trade more if it were a short swing trade, but definitely not my edge.

If risk mgmt is a very large part of your edge, does that mean your entry is a small part of your edge...but you still call it an edge? B1S2 doesn't think entry is an edge at all...so I assume he doesn't agree with you either?

 

https://www.elitetrader.com/et/thre...ts-with-no-stop-loss-or-credit-spread.318584/

 

I absolutely consider strong $ mgmt as an edge - not 'the edge', but a core component of it.

If there is a “secret” to trading, it has VERY little to do with trade identification and It has more to do with overcoming the human pitfalls of fear, greed and false hope. - one of the Market Wizards.

 

Interesting points

 

Buy1Sell2,

I used to think what you said was a bunch of BS.

But last night I re-ran a method I developed and something very interesting happened to my simulation: The backtest results all turned profitable when I tightened the stop losses but further tightening created losses again. So there is a nonlinear effect and I can fit a polynomial on the profit curves.

Perhaps you made a good point, by managing risks better, some methodology can create an edge? what I mean is the relationship between missing big winners and tightening losses are nonlinear or one to one. There maybe a sweat spot for every method on risk management vs gain.

Regards,

 

You just fitted the curves.

 

Perhaps, I will let you know.