The intersection of prediction and risk management seems so contradictory, is it reconcilable?

C

CyJackX

Traders have to be careful not to fall into the mental fallacy of using THEIR position as a variable in their market position. Whether you're red, green, flat, up, or down has nothing to do with where the market will continue and whether you should change your position. How often have you held a losing position just hoping to "breakeven", even when there is good, tradeable action happening that you could take advantage of if you weren't "stuck" in a position?

Yet risk management demands that you make decisions based on YOUR portfolio.

The magic, I suppose, is synchronizing the two, taking positions that put you at low risk.
 
I always shop for new information.
I remain *poised* to evaluate a'fresh, "de novo", at each instant of time.
When pushed, I ask, "Would I take the same position now, were I not already in it?"

These thoughts don't do so much to *reconcile* things, but perhaps to sharpen the contradiction. This is especially true if I am rolling -- If I put on a spread for $1.00, if it doubles in price to $2.00, I'll have exits written that might roll me further away, but only from $2.00 down to $1.25. (So, the roll would be costing me 75¢ absent commissions.)
Would I write the same new spread for $1.25?? If it were due to a big market expansion,
[cue Irish beat-cop voice-over] "I might, Rabbit. I might."
[oh hell. too cute]
Now, what will I do with the 75¢ cost? Do I sell a second position in the direction of the roll?
Do I go to the other side (and invite blood-loss from a whipsaw)?? Do I go out in time and sell a $1.50 condor, splitting the directional risk??

Huh. I think I'm adding more questions than answers.
FWIW, I have been working on a spreadsheet that graphically displays relative risk of directional impact, versus guaranteed tick of the (theta) clock. If you take it as a ratio, and minδ/Θ, it kinda leads to nice, empirical, *reliable* conclusions to answer that perennial trader query, Should I Stay {Or Should I Go}?
 
I consider the same question when holding, cutting losses, or taking profits: Would I buy/sell here even if my position was different? Holding past "obvious" sell points doesn't make sense just because I'm profitable. If I were to hold it's because I don't consider it a sell point.
 
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