Prudent Risk Management Is The Only True Edge In TRADING

[deaddog]

In your example, I don't see what the TLNW is. Also, what is the significance of the previous days low? Might be significant, but just to generalize would not be prudent. I think the rule about not carrying a loss overnight may be overly prudent. If the trade make sense and is in the direction of the trend, you will likely want to keep it. Yes, I know that things can happen overnight but that is where you need to compare the risk with your TLNW. If it's just 25K, you probably need to just daytrade with very tight stops, or just invest and not trade.

Why does TLNW matter. I only want to risk trading capital, and only a percentage of trading capital per trade. If you are trading your TLNW then using a percentage of it makes sense. Does the amount of capital I have available make a difference to my risk control?

The prior days low has no significance. It is a rule that is specific. I'm trying to get away from the generalities into specifics.

Why do you feel that 25K is not enough to swing trade?
Why do you feel that day trading or investing is superior to swing trading with 25K. Don't all methods of trading, day, swing and long term hold require prudent risk control?

It shouldn't matter what capital I have what should matter is how I control my risk.

 

[Buy1Sell2]

TLNW matters because one needs to have reserves in order to trade successfully. If the entire TLNW is 25k, then it would be best to remove 20k from the trading account and just trade with 5k. I am a proponent of having only 20% of TLNW max in the trading account. This will give a better perspective on how much you would like to risk if the account is kept small as it relates to TLNW. --Forget about prior day's low and instead drill down to 60 min and 240 min charts to see which days low is significant. If placing your stop outside the noise would then be too much risk, then the trade cannot be taken. --Day trading will allow someone to look at significant lows and highs on much shorter timeframes and thus place their stop extremely close, yet be able to let their winners run. Realistically though, the trader with just 25k TLNW is better served to just invest for longer periods of time.

 

[deaddog]

I am a proponent of having only 20% of TLNW max in the trading account.

What do you do with the other 80%? Some kind of fixed income?

Realistically though, the trader with just 25k TLNW is better served to just invest for longer periods of time.

With no risk management?

 

[Buy1Sell2]

What do you do with the other 80%? Some kind of fixed income?

With no risk management?

The other 80% is investment capital held in long term plays etc. Right now it's in cash and bonds etc. As far as risk management--that is easily done using margin of 1 to 1 or less and using diversification.

 

[achilles28]

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.

Thanks for all your posts here. They really changed my trading and the way I look at the market....for the better. Much appreciated

 

[Buy1Sell2]

Thanks for all your posts here. They really changed my trading and the way I look at the market....for the better. Much appreciated

I hope the ideas of risk management have helped. Thanks for your posting!---and the nice thoughts!

 

[profitlocker]

B1S2

I'm still in disgreement with you that entries don't matter. A good entry reduces risk. If you do more intraday research, you will see exactly what I mean.

No offense to you, but I don't want newer traders to come in here and read this protect your money is the holy grail BS. I've been down that road and bled slowly. The trading business is just too competitive to disregard entry significance. Prudent risk management alone is a mediocre approach, and IMO, an incomplete strategy.

You may be ignorant in regards to intraday mechanisms, but there are people here who want to daytrade. You can't form opinions about it until you walked the shoes, but you consistently mention how daytrades can be managed. The variables differ drastically and you are just unaware, so stop spewing your flawed intraday management guidelines. In regards to daytrading, finding sweet spot entry points is one of the hardest plateus to break through. I'd say impossible for most, but once mastered, will payoff enormously. We are all here to contribute and learn, and you have emphasized things (in many posts) that I totally agree with. For example, how over leveraging blindfolds us and hinders proper trade management.

 

[deaddog]

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.

Cut your losses short and let your winners run. Excellent advice, but you're talking generalities. When you get to the specifics of how to do this, it becomes a lot more complicated and without some type of edge all you are going to do is delay taking your trading account to zero.

Prudent risk management is the only true edge no matter what the time frame.

Yet it is recommended that a trader with a 25K account either daytrade or buy and hold. "Buy and Hold " is just a trend following strategy with no risk management.

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.

TLNW matters because one needs to have reserves in order to trade successfully.

I am a proponent of having only 20% of TLNW max in the trading account. This will give a better perspective on how much you would like to risk if the account is kept small as it relates to TLNW. –

The above leads me to believe that you are trading form a bias of Fear. My guess is you cut your losses way too soon and don’t let your winner run, but take off your trades at the first sign of a reversal.

I suggest that you incorporate risk management into your overall strategy but that you develop a proven edge that you can exploit.

 

[Redneck]

A good entry reduces risk.

RN

 

[Aj2014]

but that you develop a proven edge that you can exploit.

But I think what he's saying is that there is no such thing as an 'edge' apart from 'risk management'
i.e - you may aswell flip coins to decide long or short, but make sure that you always make more on your winners than you lose on your losers.