Prudent Risk Management Is The Only True Edge In TRADING

Is Prudent Risk Management the only true edge in trading?

  • Yes

    Votes: 53 29.9%

  • No

    Votes: 124 70.1%
  • Total voters
    177
Buy1Sell2 said:
Certainly. Pick a random entry and place a stop that will lose a small amt if wrong. However , if right, let it run placing protective stops outside the noise. It's that simple.
More...
Can you be a little more specific?

Monday @ 10:00 am EST I will short 100 SPY. (Random entry).

Where do I place my stop to only risk a small amount? Assume an account size of 25K

How do I determine what the noise amount is, and how far outside the noise do I place my protective stop?
 
profitlocker said:
That's true and neophytes should only focus on risk management if they wan't to protect capital (and possibly bleed slowly). Many traders at this stage, but I assure you, plateaus will not be broken until they learn to read price. I went through all the aformentioned stages
More...
Extreme healthy profits can be made using random entries and Prudent Risk Management. It's just that simple---Prudent Risk Management is the only true edge in trading. There is no other.
 
deaddog said:
Can you be a little more specific?

Monday @ 10:00 am EST I will short 100 SPY. (Random entry).

Where do I place my stop to only risk a small amount? Assume an account size of 25K

How do I determine what the noise amount is, and how far outside the noise do I place my protective stop?
More...
This is where the edge is. It must be related to account size, market noise and Total Liquid Net Worth (TLNW). I don't risk any more than 2% of TLNW and many times, much less. So, I cannot forward to you a chart or rules about where to place a stop. That is proprietary. That is the edge and each trader would have a different definition of where to place the stop outside the noise.
 
I've made this point before but I would like to reiterate--The risk management forum is one of, if not the least, visited forums on ET. This is very telling. Most ET posters do not pay attention to the risk management forum. Most traders do not pay attention to risk management. Most traders lose money. ---Izzy
 
Perfect risk management is taught or was being taught at clearing firms when floor traders in Chicago would enter intern training program. A true scalper has near 100% perfect risk management. That risk management is occurring at tick bid/ask level. Current algos that layer the DOM try to do this or emulate the floor scalper at incredible speeds. A retail trader/position/swing trader try to approximate this but at huge spreads.

So the scalper is pure random entry, he's always trying to make the market. The clearing firms discouraged speculation because they have seen numerous traders come and go from speculation. A scalper is random entry based on which side he gets filled. If his ask is hit he immediately tries to unload at the bid making the spread and vice versa. If the market moves in his favor the scalper lets it ride for a few seconds before unloading. But always a scalper cuts his losses immediately if market moves away from his fill.
 
Last edited:
Spectre2007 said:
just look at the 2hr chart using EOD, draw your trendlines/support/resistance. Place a buy or sell stop order above or below the trendline based on the direction its breaking. If prices are stepping down, your trendline will be negatively sloped. So your buy stop order with stop loss would be slightly above the trendline. Calculate what effect your stop loss value will have on your account. If your stop loss gets hit and you loose 10% of your account, you will only be able to trade 10 times before you run out of cash or hit margin limiting criteria. The price action dictates your stop loss size, if the variance is high and your stop loss is within the variance zone, most likely it will be hit. If your unable to place a stop loss outside the variance zone, than your account size is too small to trade that derivative. If your buy stop on a negatively sloped trendline gets hit and your stop loss doesn't get hit, the previous intermediate term highs and lows will dictate where to exit the trade or TP /take profit.
More...
Buy1Sell2 said:
This is where the edge is. It must be related to account size, market noise and Total Liquid Net Worth (TLNW). I don't risk any more than 2% of TLNW and many times, much less. So, I cannot forward to you a chart or rules about where to place a stop. That is proprietary. That is the edge and each trader would have a different definition of where to place the stop outside the noise.
More...
Buy1Sell2 feels that he has to keep his edge under his hat. I'm not sure how widespread knowledge of a prudent risk management system would affect the market but I won't be getting any specifics from him.

Given the same scenario. A short of 100 SPY at 10:00 EST on Monday with a 25K account size where would you place your exits.

Can you be more specific than "slightly above", "Price action dictates stop loss" & "Variance zone"? Why a 2 hr Chart?

This is not intra day trading. I use EOD data. I can place stops that will stay in place all day but don't have time to monitor the market.

I believe that prudent risk management is an integral part of an Edge but have my doubts that it can lead to success with random entries. I am more than willing to be proved wrong.
 
Spectre2007 said:
Perfect risk management is taught or was being taught at clearing firms when floor traders in Chicago would enter intern training program. A true scalper has near 100% perfect risk management. That risk management is occurring at tick bid/ask level. Current algos that layer the DOM try to do this or emulate the floor scalper at incredible speeds. A retail trader/position/swing trader try to approximate this but at huge spreads.

So the scalper is pure random entry, he's always trying to make the market. The clearing firms discouraged speculation because they have seen numerous traders come and go from speculation. A scalper is random entry based on which side he gets filled. If his ask is hit he immediately tries to unload at the bid making the spread and vice versa. If the market moves in his favor the scalper lets it ride for a few seconds before unloading. But always a scalper cuts his losses immediately if market moves away from his fill.
More...
yep
 
long 100 spy at 190.0,...stop 186.0... stop loss value is 400 dollars.. take profit is either 194 or 198.

25,000 equity/400 = 62.5

100 spy costs 19,000 to keep trading fixed 100 spy.. 25,000-19,000 = 6000
6000 / 400 = 15

so essentially you can only trade 15 times before you need to reduce amount of shares.

if you had 10 consecutive losses, 4000, but let your winners ride for 5 trades, letting your winners ride implies, more than the 400 dollar stop, the setup would need to yield 4 times the stop loss..or 1600, 1600 x 5 = 8000. You would be at 29,000 equity.

if take profit is only 3 times stop loss.. 1200 x 5 = 6000, you would be at 27,000
if take profit is only 2 times stop loss.. 800 x 5 = 4000, you break even.

so you need to filter the setups where profit potential is 2-3 times stop loss..
 
Last edited:
You must log in or register to reply here.
Back
Top