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
ironchef said:
Buy1Sell2,

I used to think what you said was a bunch of BS.

But last night I re-ran a method I developed and something very interesting happened to my simulation: The backtest results all turned profitable when I tightened the stop losses but further tightening created losses again. So there is a nonlinear effect and I can fit a polynomial on the profit curves.

Perhaps you made a good point, by managing risks better, some methodology can create an edge? what I mean is the relationship between missing big winners and tightening losses are nonlinear or one to one. There maybe a sweat spot for every method on risk management vs gain.

Regards,
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Interesting posting. -and thank you for doing so. Tightening stops can certainly change a system from losing to winning as well as letting winners mature and position sizing etc. ---Managing risk is the only variable that we can control as traders so it makes sense that prudent management of same is the edge.---Ishmael.
 
Buy1Sell2 said:
Interesting posting. -and thank you for doing so. Tightening stops can certainly change a system from losing to winning as well as letting winners mature and position sizing etc. ---Managing risk is the only variable that we can control as traders so it makes sense that prudent management of same is the edge.---Ishmael.
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Thanks, and thank you for the thread.

By the way, I finally figured out Buy1Sell2. Tried it today. :thumbsup:
 
Well if you don’t have a defined real edge risk management can be your only edge. As to whether one can make decent profit from that alone it’s anyone’s guess.
 
Buy1Sell2 said:
Interesting posting. -and thank you for doing so. Tightening stops can certainly change a system from losing to winning as well as letting winners mature and position sizing etc. ---Managing risk is the only variable that we can control as traders so it makes sense that prudent management of same is the edge.---Ishmael.
More...
@ironchef, what you could also do is to cut your dataset in eg 4 parts, and test how your optimized/curvefitted stoploss works out.

That would make of a simplified version of k-fold cross validation, simpler, but better then not doing it. And pragmatic, for us, retail

Btw since we seem to trade a bit in the same way, swing / portfolio managing using options, it should be good to exchange ideas, without giving away your hard work ofcourse. I do something similar perhaps, basically it’s derived from Muppets advice (theta/gamma)
 
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