Risk Management is the answer

[virtusa]

Guard your money, and develop your edge based on low risk ideas.

Then add to positions when they show profits, not losses.

At all times be ready to get out. The freedom to exit at any time is the speculator's main advantage, especially now that commissions are zero.

Because the downside is the only thing you can really control....

We all know it takes 33% gain to make up for a 25% loss, or 100 for 50, and so on.

Therefore guard your money at all times!

There is a contradiction in what you post. You don't need to know that a 50% loss requires next a 100% profit to recover. Because if you guard your money you will never have a 50% loss. If you have 50% losses you should review your trading plan.

I also don't agree with that sentence because:

• If you guard your money you will never take the maximum margin you can get. Because trading the maximum margin you can get is crazy and irresponsible. Just the opposite of guarding your money.
• If you don't use the maximum margin you can get, after a loss you don't need necessarily to reduce size. So then you don't have the resizing handicap.

I only reduce size once I reached a 20% drawdown. So my recovery stays 1 on 1 till I reach -20%. I never trade less than 5 times the minimal margin, so there is room to stay on size. If you do that, a 25% loss will be recovered with a 25% profit. So you need only 75% of the move a resized position would need (in case of the 25% loss).
For a 50% loss it becomes even more horrible.

 

[noframe]

I also don't agree with that sentence because:

• If you guard your money you will never take the maximum margin you can get. Because trading the maximum margin you can get is crazy and irresponsible. Just the opposite of guarding your money.
• If you don't use the maximum margin you can get, after a loss you don't need necessarily to reduce size. So then you don't have the resizing handicap.

Agreed!

 

[Buy1Sell2]

The only edge in successful trading is Prudent Risk Management.

 

[Buy1Sell2]

https://www.elitetrader.com/et/thre...ment-is-the-only-true-edge-in-trading.292728/

 

[KCalhoun]

Risk management is everything. Exits are critical. Tiny stops are by far the most important edge.

 

[Wide Tailz]

There is a contradiction in what you post.

I find you to be a fascinating Elite Trader. Seriously, I would meet you in person to see what you're like (no homo).

*edit - I think I get what you're saying and saw something similar in testing, years ago. I'm at nowhere near that level but I've seen the light. If an average trader does not put account protection at the front of their mind, it's only a matter of time before they get wiped out. Exhibit A - 300,000 bitcoin accounts liquidate in the past week! I'm down a few percent last week because of stupid mistakes, and thankful for it....

 

[maxinger]

Risk Management is the answer

--->

Risk Management is One of the answers

 

[virtusa]

I find you to be a fascinating Elite Trader. Seriously, I would meet you in person to see what you're like (no homo).

*edit - I think I get what you're saying and saw something similar in testing, years ago. I'm at nowhere near that level but I've seen the light. If an average trader does not put account protection at the front of their mind, it's only a matter of time before they get wiped out. Exhibit A - 300,000 bitcoin accounts liquidate in the past week! I'm down a few percent last week because of stupid mistakes, and thankful for it....

I use unconventional thinking/logic in most things I do. So also in trading. I can push that logic to the limit where people thing that I am crazy. I am an extreme out of the box thinker. Which is beneficial as I trade against the herd.

 

[Dennella]

In order to recover from the drawdown, you will have to take leverage which again can amplify your risk. Therefore, protecting the money should be your first priority and whatever profits you can make over it is complementary. Even if you can’t make it up to the profits you wanted to achieve, you should at least not lose what you already have and risk management is the best way to preserve your capital.

 

[kamrynstroud]

A trade doesn’t always move in your favor, which is why risk management is of paramount importance if you want to protect your account. Most traders focus on the number of opportunities but fail to understand that a missed opportunity is better than having taken a trade and losing your all, because of poor risk management.