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
romik said:
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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Hypothetical example would be selling ES today 1939 (previous reaction high) with a 27 point stop at 1966, (1939 - 1803)/5=27 points. Assuming probability @ 20% and 5:1 reward we could allocate 4% of trading account to each trade. Let's consider that being equal to 1 lot based on current range based target and stop distance.
 
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romik said:
Hypothetical example would be selling ES today 1939 (previous reaction high) with a 27 point stop at 1966, (1939 - 1803)/5=27 points. Assuming probability @ 20% and 5:1 reward we could allocate 4% of trading account to each trade. Let's consider that being equal to 1 lot based on current range based target and stop distance.
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-4% wait for next setup
 
Buy1Sell2 said:
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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It's not even wrong. In the sense that it's far from being concrete, applied. So in theory that sounds good. But it is too abstract for being an edge. Theory without practice is worthless. I think it's bad to bet everything on one peace of a puzzle. I've done that before. Focusing on asymmetries and convexity. But I wasn't improving my trading. Because it's always gonna be as weak as the weakest link. So a good thing to do is to avoid being fooled. Exemple, in believing an edge is about one and only one thing. Especially when risk management rely on outside information, conditionals. It's not self sufficient.
 
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K-Pia said:
It's not even wrong. In the sense that it's far from being concrete, applied. So in theory that sounds good. But it is too abstract for being an edge. Theory without practice is worthless. I think it's bad to bet everything on one peace of a puzzle. I've done that before. Focusing on asymmetries and convexity. But I wasn't improving my trading. Because it's always gonna be as weak as the weakest link. So a good thing to do is to avoid being fooled. Exemple, in believing an edge is about one and only one thing. Especially when risk management rely on outside information, conditionals. It's not self sufficient.
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Makes no sense. Incoherent.
 
romik said:
L1973 sl1965 target 2013

Risk 4% paper trade
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This call travelled around 94% to target yesterday and broke down to 2 points from stop loss, today we are ringing the register with +20% @ 2013 ES.

Tally: -4%, +20%, +20%
 
I'd say ... Evaluate the P(G) of your system.
And if the average R:R is less than 1/P(G)
Then DO NOT trade your system.

The ratio may be your only edge,
But it's not the only variable that matters.
 
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