Prudent Risk Management Is The Only True Edge In TRADING

[Buy1Sell2]

would you rather give your money to a guy who claims he is a really good guesser when it comes to identifying the trend, or a guy who is very good at setting stops?

either way, they are both just guessing, except the stop setter has something very concrete to work with, like your account balance. The entry guesser has nothing but dreams and theories and past data to bet on.

a good stop setter has very good entries

CORRECT

 

[qxr1011]

imho risk management - is a result of correct trading method that encompasses the entry, the position management and the exit

so it is not an only edge , its not even an edge in itself, it's a result of the edge and its proper exploitation

 

[murray t turtle]

This is a fact. In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. Why do most traders (especially day traders) lose? They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners. You see, Prudent Risk Management is not just about placing an initial stop---it's also about managing a winning trade. Remove the focus from high winning percentage. Retrain focus on losing a little and making a lot.

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That;
and trend study + trends.........................................................

 

[Hydraace]

imho risk management is all about known you entry your exist and how to manage your position by setting hard and soft limits and being disciplined.
Prudent Risk management is all about timely execution on all of those fronts with positive results.
Like many have said. Knowing when to get out of a bad trade is pivotal in preserving the stack.

 

[Visaria]

Identifying the trend in a given time frame is easy. All you need to do is to develop a definition of trend and then apply it to the market/time frame in question. Easy!

Knowing where to enter and where to exit to take advantage of the trend, well that's the tricky part.

 

[loyek590]

Identifying the trend in a given time frame is easy. All you need to do is to develop a definition of trend and then apply it to the market/time frame in question. Easy!

Knowing where to enter and where to exit to take advantage of the trend, well that's the tricky part.

that's why I say you have to be in to win (or at least have resting stops to enter.) I'm too slow to catch a fast moving trend. Almost every good strong trend I have ever been on the right side of was just a lucky accident. Exiting is another matter. There's no good way to exit a trade. That's why I just don't do it. If I haven't been stopped out I just move on and let the profitable trade take care of itself. At some point it will be a thurs night before NFP sitting on a huge profit, or everything is just working too well, or they have given me so much money it is just ridiculous, then maybe I will close out, but it very rarely has anything to do with my ability to guess the end of the trend.

 

[Visaria]

loyek, i have read many of your posts and your method ("i never take a profit") is intriguing. May i ask you some questions?

1) what's your historical win rate?
2) do your profits easily cover your losses and much more?
3) how do you exit the profitable trades? when you say you let the profitable trade take care of itself, what does that mean?
4) do you add to your profitable trades?

tia

 

[loyek590]

loyek, i have read many of your posts and your method ("i never take a profit") is intriguing. May i ask you some questions?

1) what's your historical win rate?
2) do your profits easily cover your losses and much more?
3) how do you exit the profitable trades? when you say you let the profitable trade take care of itself, what does that mean?
4) do you add to your profitable trades?

the thing that sets me apart from a computer is, there is no method to take a profit. My only job as a homan beong is to decide when to do that terrible thing. My analog robots do all the work, they only call me when the whole thing goes profitable. And I get really depressed when they never call.

tia

1. incredibly low
2. easily, but it takes forever
3. I don't know, just depends on the market
4. always, that is my only "secret"

 

[loyek590]

1. incredibly low
2. easily, but it takes forever
3. I don't know, just depends on the market
4. always, that is my only "secret"

I have a mechanical sytem with no exit strategy. If you trade it long enough, eventually you will go broke. I have no stress because I already know how it will go. But getting back to prudent money management, just like any poor employee, I put a little of my profits away for old age. I suppose I would be richer if I had just piled on, but I'm already nervous enough as it is. The only peace in my life is opening up my Vanguard mutual fund statement. It can be down 50% and compared to trading I still feel safe.

 

[Visaria]

More intrigue! Why will you go broke if you trade it long enough?