RISK

[Mysticforex 13]

What's more important the way you manage your winning trades, or the way you manage your losing trades ?

 

The winning trades take care of themselves. The way you manage the losers is what will make you or break you. Decide what is the max you are willing to lose. Let's say you have 40K in your acct, and the max you are willing to lose is 10K. And you should never risk more than 1% on any single trade... or $100. So, you can take a 10k position with a 100 pip stop, a 20k position with a 50 pip stop, etc.

It's all about :

Selection_ Try to take a strong currency against a weak currency

Size_ If your analyse tells you, you need a 50 pip stop, then you can take a 20K position.

Scale_ Weather or not you are going to scale out with your profits. with a 100 pip target do you take half off at +50 to cover you ass?

Stop_ Self explanatory , use a STOP.

 

SSSS.

[SIUYA 11]

  Mysticforex said:

What's more important the way you manage your winning trades, or the way you manage your losing trades ?

 

 

same thing.

 

 

If Zdo said nothing on this site, then the one thing he said that is worth thinking about - " its system specific."

 

IMHO-For many they probably miss-manage their winners and so they dont 'take care of them selves.' This then leads to changing stops etc.

[jpennybags 11]

  Mysticforex said:

What's more important the way you manage your winning trades, or the way you manage your losing trades ?

 

I think both should share equal weight. Calculating risk has many factors: W/L ratio, time of day, trend vs counter trend, the market traded... and so on. Each time I enter a trade it's at a R/R of 1/1 and roughly 6% of my account. I manage risk through entries, exits, and price action... the W/L ratio is high and I rarely get tagged for a full stop.

 

In trading there are no absolutes. Wait... there is one: don't lose money.

[MightyMouse 12]

Risk is the best teacher.

[BlueHorseshoe 10]

I'm going to be contrarian, and suggest that what you're talking about here isn't really risk.

 

Here in the UK (and I imagine the US is the same as it's litigation-central) we have things called 'Risk Assessments'. These are basically bits of paper where all the 'risks' associated with an activity are listed, and measures to 'control' them are described. I was recently discussing this with someone who works in the outdoors industry taking people up mountains. She has lots of risk assessments.

 

My argument is that once you identify and find a measure to mitigate it, it isn't risk. Risk is the curveball. The deus ex machina. Risk is when you've identified all the dangers of dehydration, hypothermia, and trips and falls on a mountain climb, and everything feels safe, and then a spear of frozen urine ejected from the toilet of a passing overhead plane plunges straight through the top of your skull. That's risk! The unpredictable.

 

Taleb cites the following more realistic example . . .

 

Consider yourself responsible for controlling risk for a Vegas casino. What are you going to do? You'll want great security, cameras everywhere so you can see what's going on, maybe detectors to stop people using concealed computers, highly trained crupiers who can spot card counters a mile off, a list of well known con artists and career gamblers . . . You get the picture. These are the kind of problems you can see, predict, and try to control. If you do them well you'll probably convince a pedestrian insurer that you've controlled the major risks.

 

The three biggest financial losses to casinos in the history of Vegas?

 

- When that magician got mauled by his pet tiger and sued the casino.

 

- When the casino owner embezzled the casino's own money to pay ransom on his kidnapped daughter.

 

- When a disgruntled former employee decided to rig the parking lot with explosives.

 

Once again, that's risk!

 

And managing it is, by definition, very difficult indeed . . .

 

BlueHorseshoe

[MightyMouse 12]

  BlueHorseshoe said:

I'm going to be contrarian, and suggest that what you're talking about here isn't really risk.

 

Here in the UK (and I imagine the US is the same as it's litigation-central) we have things called 'Risk Assessments'. These are basically bits of paper where all the 'risks' associated with an activity are listed, and measures to 'control' them are described. I was recently discussing this with someone who works in the outdoors industry taking people up mountains. She has lots of risk assessments.

 

My argument is that once you identify and find a measure to mitigate it, it isn't risk. Risk is the curveball. The deus ex machina. Risk is when you've identified all the dangers of dehydration, hypothermia, and trips and falls on a mountain climb, and everything feels safe, and then a spear of frozen urine ejected from the toilet of a passing overhead plane plunges straight through the top of your skull. That's risk! The unpredictable.

 

Taleb cites the following more realistic example . . .

 

Consider yourself responsible for controlling risk for a Vegas casino. What are you going to do? You'll want great security, cameras everywhere so you can see what's going on, maybe detectors to stop people using concealed computers, highly trained crupiers who can spot card counters a mile off, a list of well known con artists and career gamblers . . . You get the picture. These are the kind of problems you can see, predict, and try to control. If you do them well you'll probably convince a pedestrian insurer that you've controlled the major risks.

 

The three biggest financial losses to casinos in the history of Vegas?

 

- When that magician got mauled by his pet tiger and sued the casino.

 

- When the casino owner embezzled the casino's own money to pay ransom on his kidnapped daughter.

 

- When a disgruntled former employee decided to rig the parking lot with explosives.

 

Once again, that's risk!

 

And managing it is, by definition, very difficult indeed . . .

 

BlueHorseshoe

It's not possible for a urine spear to pass through the helmet he is wearing to protect him from a fall, given his proclivity to be prepared. A urine spear traveling at 32 s^2 would crumble if it hit a helmet. Nor is it possible for him to bleed out since he has all the necessary first aid if the spear does not hit his skull and, instead, injures his thigh.

 

You make a good point though.

 

Dealing with risk in trading or gambling is learning to survive while dealing with outcomes that are not happening but should be happening. It is easy to assign personal brilliance to a positive outcome, taking credit for being in the right place at the right time. The risk while laughing all the way to the bank is that the same frozen urine spear will crush your skull as you walk from your car to the front door of the bank. In the long run everything happens.

 

Please send along pics if you wear a helmet while going to the bank.

[jpennybags 11]

  MightyMouse said:

Dealing with risk in trading or gambling is learning to survive while dealing with outcomes that are not happening but should be happening. It is easy to assign personal brilliance to a positive outcome, taking credit for being in the right place at the right time. The risk while laughing all the way to the bank is that the same frozen urine spear will crush your skull as you walk from your car to the front door of the bank. In the long run everything happens.

 

Please send along pics if you wear a helmet while going to the bank.

 

Ha! "Always wear clean underwear... cause you never know what will happen".

[TheRumpledOne 14]

ALL YOU NEED TO KNOW ABOUT TRADING

 

* Price either goes up or down.

* No one knows what will happen next.

* Keep losses small and let winners run.

* POSITION SIZE = RISK / STOP LOSS.

* The reason you entered has no bearing on the outcome of your trade.

* You can control the size of your loss (skill) but you can't control the size of your win (luck).

* You need to know when to pick up your chips and cash them in.

 

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)

 

You cannot control the probabilities of wining or losing.

 

You cannot control your average win size.

 

The only part of the equation that you can control is your average loss size.

 

PRICE ACTION

 

“Now, 2 patterns of market behavior happen on a regular basis:

 

1) the price breaks to new high's (or low's)

 

2) the price reverses from new high's (or low's)

 

They happen regardless of time frame .

 

They are phenomena that can be exploited without the fear if found out by others, that they might cease to exist.” - H. Rearden

 

1) Price will either breakout of the high, low or both of the previous bar

 

2) Price will not breakout of the previous bar.

 

You cannot reduce it any further. Anything else complicates the issue.

 

ENTERING A TRADE

 

You either decide to:

 

1) Wait and do not enter a trade

 

2) Trade a breakout

 

3) Trade a reversal.

 

Those are your ONLY 3 options.

 

That is all you need to know about trading.