I run forward tests.
Prudent Risk Management Is The Only True Edge In TRADING
- Thread starter Buy1Sell2
- Start date
I do control risk. That isnt what this debate is about. The premise of this thread is risk management is an edge and that alone will make you profitable. That is the definition of an edge. And it isnt.
If i showed you how to predict the next 4 ticks in the S&P with 80% accuracy you dont need a convoluted strict money management system to make money.
Predicting the next 4 ticks in SP is not material. It is what you do if you buy the SP looking to make 4 ticks. Do you pull it at 3 pts, do you pull it at 2 pts. Do you scale in or out etc etc etc. Where is the stop etc etc etc. The only edge any trader has is prudent risk management.
This would make you virtually an infant in this business. Nothing wrong with that, but you will learn over time.
For me this is complete nonsense. Risking 10 to 1 means you need to be right +90% of your trades to make money, because in 1 trade you can lose 10 times more than you can win. That's indeed insane. Look up the definition of INSANE and you will understand that in short time things will go wrong. Because you do things that are insane.
If you trade with insane risks you will never survive even 2 years. Insane means a risk that is completely out of proportion. The first thing a good trader has to do is watch the risk/reward ratio. If you risk 10 to win 1 it means you watch the ratio upside down.
I know somebody personally who took insane risks. Started with 1 million, doubled it in 1 year, and lost in the next year TEN MILLION. He even did not survive the full second year. He lost everything he had, including his businesses. His wife left him too. But that might have been a positive thing.
What would be reasonable odds at 5:1 in your view?
Example being buying potential double bottom in ES or SPY (DAILY) where target is previous reaction high, as it's at 5:1 stop would be equal to (previous reaction high - previous reaction low)/5. Opposite for selling potential double top.
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It all depends how hard YOU flick it, and whether YOU let it fall to the ground and roll, or catch it in your hand!
There are always variables in relation to any outcome, but most just never bother to stop and think about them!
J_S
That is nothing
Look up Sean Quinn Irish Billionaire, his net worth around 2005 was something like 4.2 billion Euro, after starting out with one cement lorry back in the late 70's I think, and by 2007 had his hands in many pots, covering bottling plants, food processing, cement mixing, health insurance, life and car insurance, and many property investments across Europe.
He started to buy shares in Anglo Irish Bank round 2005, using leveraged CFD's, on advice from his "professional advisors", and by mid 2008, roughly, he had lost 4 billion Euro as the worldwide property bubble bust.
So, a person can make heaps of money for most of his/her life, and still blow it all with one silly decision!
I remember seeing a programme they done about him during the boom, and he was a very quiet and private man, set in his old ways, and would not even carry a mobile phone, which he is obviously very sorry he did not do now, as one simple phone call could have saved him, literally, a fortune!
J_S