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. hyom


    Risk management is unrelated to having an edge.

    If you have no edge but good risk management, you die by a thousand cuts. Slowly but surely.

    If you have an edge but no risk management, you will make money for some time until one day one big chop comes along and you die instantly. Suddenly but surely.

    If you have an edge and good risk management, you will live long and prosper.
    #761     May 16, 2020
  2. ironchef


    I came to the realization nobody knows exactly what risk management is. Everyone has their own definition, it ranges from practicing fractional Kelly to something very esoteric like the article I quoted. What exactly is your definition of risk management sir?
    #762     May 16, 2020
  3. hyom


    First, please don't address me sir. We're all equals in the online world.

    I don't have exact definition of risk management. It is a process and can't be defined purely by practising something like fractional Kelly. In my book, risk management is a process to ensure long-term survival when one has an edge.
    #763     May 17, 2020
  4. ironchef


    I know it is getting to be circular, but if you have a process and it is called risk management, without it you lose money and have a high chance of wipe out, with it you make money, then, risk management is your edge???

    An example is stop loss. Most of us defined SL and a key part of risk management. Many trading strategies would fall apart without SL, so risk management is the TRUE edge in those particular strategies?
    #764     May 17, 2020
  5. userque


    I don't have a dog in this fight, but let's suppose that in your same example, if you went with a random entry, rather than the strategy's entry, and the strategy also failed, even with the stop-loss. Would risk management still be the TRUE edge, in your opinion?
    #765     May 17, 2020
  6. ironchef


    Like you I actually don't have a dog in this fight either, and I didn't say risk management is THE TRUE edge, I was asking could it be AN edge..

    I have no opinion, just trying to understand risk management and what it really does.

    What do you think?
    #766     May 17, 2020
  7. userque


    Ok, gotcha.

    Using a default Google definition of "edge", that I can agree with:

    "a quality or factor that gives superiority over close rivals or competitors."

    If everyone is doing it, or knows about it, it can't be 'an edge,' by definition, imo. This is so whether it's the entry or exit or hedging or risk management, or anything else, strategy.

    So all of the usual suspects (kelly, etc.) can't be edges, imo. (Unless they are being utilized in some novel way.)

    You can enter with a standard MA crossover; and have an edge with risk management and exit strategy,

    Or you can enter with a strategy that has an edge regarding entries; and have basic kelly risk management with a typical exit strategy.

    Edges aren't mutually exclusive, imo.
    #767     May 18, 2020