Bingo
Prudent Risk Management Is The Only True Edge In TRADING
- Thread starter Buy1Sell2
- Start date
Prudent Risk Management never dies.
So what? Instead of losing your account in 6 months after your edge dies you lose it over the course of a year.
Risk management is essential in trading. But it isnt an edge and will not give you a positive expectancy. Try playing roulette with a "prudent risk management system" you will end up the same place as the guy that comes in and bets big over a long enough time scale.
Repeat.. i am not advocating people dont have risk. But if people spent half the time they do banging on about Van Tharp and R multiples and concentrated on finding an edge they would be far better off.
Establishing a winning strategy, be it a low win rate or high win rate, is a part of PMM. Most research just one part of PMM, a system, ignoring all other parts of PMM, like accounting for a very possible run of losing trades, over committing/leveraging, not having enough bankroll, overtrading, revenge trading, etc. PMM is a complete plan of action, where a win rate forms just a part of.
Exactly this. This is why risk management alone should have no positive expectancy by itself. Unless, you've got an edge to exploit (aka being "the bank" or "the moneyprinter").
Definition of "prudent risk management":
Legal obligation to act in a position of responsibility with the degree of care, diligence, and skill that a person of ordinary prudence would exercise in the same or similar circumstances.
Nothing in this tells you how to win consistently.
If someone want to re-define this, I urge them to point us to their complete definition, or shut up and start listening others. Reiterating the same flawed points doesn't make it any more true or understandable for others. The same for relying on vague magical arguments without any real substance.
Granted, risk management is good for both avoiding great losses and taking profits, but that in itself is not enough to define a consistent edge.
That people are unaware of their edge and anti-edges, is very common intellectual laziness though.
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A consistently high win rate system (most ET posters refer to it as being THE edge in trading) is yet to be seen to be believed. The are probably thousands of claims having an edge, but until this day there is no proof. We have heard all excuses under the sun why claimers don't wish to prove it. As far as I am concerned most can and will have periods where their method fires winner after winner, but the opposite is also true.
You are not grasping the concept of Prudent Risk Management.
Explained many times at ET. Stops are just a small portion of Prudent Risk Management.
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Right. So if i flip a coin. Heads I go long. Tails I go short and i employ "prudent risk management" will i make money? If the answer is no, it is NOT an edge
Having made a decision to go long or short is just one step, surely the next step is to manage the risk by waiting for a low risk entry to occur.