Jump to content

Risk Management

Recommended Posts

Good one @Caseynotes encapsulated many important points in one short clip, and nice to use an example from one of the legends who do all seem to have made the same mistakes retail traders are making.  Also interesting to note that most, if not all, seem to have been on the point of washout at some point in their careers.

I think the point about size of position is very valuable in the context of risk and money management.  Also related to that is the idea of going all in because you are "convinced" of something.  For me the risk mgnt part of this is about assessing how much you are willing to lose to get the potential gains in the context of the likelihood of being right.  When I conduct my analysis and assess an actual trade entry idea off that analysis (which includes Fundamentals assessment) if factor in whether I am going against the trend, have a confirmation that needs my preset rules set (or recognise I am bending my rules based on instinct and set my risk threshold accordingly.  I also have rules about how much of my capital I allow myself to risk on any trade set up (not any trade but the whole set up) and even if I bend trade trigger rules I never ever bend this fundamental money management rule.

A couple of other thoughts:

  1. When I complete some analysis I test it with other related markets and also ask myself what if I'm wrong, what scenarios could exist in direct opposition to the trade idea I am chasing, what would that look like in terms of market price action and in that event what will I do?  The answer to that last is if I see the market behave in a way that is inconsistent with my set up then I scratch as early as possible, sometimes even when I am still in the money.  My biggest losses came when I did not do the above.
  2. When I take trade I have an exit point mapped out and of course a stop placement.  If the trade is initially successful, and mindful that reversals can occur that rigger #1 above, I move my stops to reduce exposure and eventually to break even (BE).  I do not use trailing stops because I don't want to get stopped out by accident when I'm not looking unless at the BE point.  And I never, ever, ever move my stops back away from the market if it is approaching.  Can always seek another point to get back in if needs be.


Link to comment

Ok @TrendFollower I get all that and thanks for sharing.  I guess you didn't include FX in your assessment of markets going down faster than up as these are pairs and therefore relative but fully understand and agree the point, Shorting can be very lucrative very quickly BUT is inherently more risky for at least 2 reasons (at least on stocks): on balance markets go up more days than they go down (which is a corollary of you statement on speed of bear markets); in stocks you also take a hit on any dividends declared.  I would also add that the speed of the bear moves is such that they are harder (and more potentially costly in terms of stop distances) to catch.  Technical analysis can help with this as there is almost always a significant retrace off the first bearish move, if we can identify it correctly (as currently being discussed on stock indices elsewhere).

I assume you were talking about me when you mentioned a point I made in another post.  I agree with you that the trading system, methodology, plan, rules, call it what you will is vital, critical.  You have to have this, have practiced it and proven it and follow it rigorously.  I think risk and money management (and I make a distinction between these 2 different but related aspects) are part of that trading systems.  Where we seem to disagree is that you think technical analysis is something apart from a trading system and for me it is integral and core, along with Fundamentals at long term time-frame levels.  It is fine for us to disagree on this point, especially if you do not use analysis in this way but I just wanted to make the point that people who are extensive users of technical analysis (including some of the Market Wizards you pointed us to) use technical analysis as triggers to enter, locate stops and indeed exit a trade.  Again it is horses for courses, no absolute right or wrong or best here.


Link to comment

Oops! ok my bad @TrendFollower, didn't see the reference to Caseynotes.  But again, just to clarify, the charts, lines and ABCs etc ARE part of my trading system.  They are obviously not part of yours so that's fine for you to have the opinion you do but it is not correct for technical based traders like myself.  That's all I mean to point out.

Link to comment

Thanks for the responses @TrendFollower & @Mercury I must admit that when I started the thread it was really just as tear off and throw away platform for the video, I wasn't really expecting the Spanish Inquisition but then of course no one ever expects the Spanish Inquisition. I thought the video was well worth a share as it was so punchy and to the point, not covering the hows but simply reinforcing the whys. As has been pointed out many don't really understand how important risk management is til it's too late.

The discussions above reminded me of a number of things on the short selling of stock. One was of the differing horizons between buying and selling, buying you are looking up to a expanding sky, selling is looking down to a fast drop and possibly a box in a hole in the ground. Elon Musk was recently bit ching about short sellers trying to destroy Tesla but that was an exaggeration, short sellers are just gambling on what they see as an over valuation and the likelihood of an imminent correction. Valuation is all about perception and Musk was doing all he could to keep that perception high. I was also thinking back to when I was on a discussion forum at the time Woolworths  stock was falling. As the stock price was dropping the shouts going round were of "I'm buying all get here, price will never be this low again", there weren't many expressing caution. I was wondering just who was left holding all that worthless paper once the final collapse came, did the big players see what was coming and get out leaving the paper scattered throughout the country in the hands of small retail traders, many of them probably did.   

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 28/03/23 09:13
  • Posts

    • Micron Technology is poised to post a loss of 66 cents per share on another drop in revenue. Three months ago, sales fell 41% to just over $4 billion.  Jeremy Naylor | Analyst, London | Publication date: Tuesday 28 March 2023  The chip industry is still suffering from distortion originating from the Covid-19 pandemic. Orders soared during 2020 and 2021 to supply a technology boom, pushing Micron and other chip makers to produce more. Now, in the context of fears of a recession, they are left with excess inventories and are being forced to wind down their capital investment budget.   Micron earnings Tonight after the close of Wall Street we've got an all-session stock reporting earnings, which could be interesting. It is the chip company, Micron Technology. It's poised to post a loss of $0.66 per share. Revenue is expected to continue declining to $3.75 billion. Three months ago, sales fell 41%, just over $4 billion. So it's on this downward trajectory. As I say it is an all-session stock on the IG platform. You'll be able to take a tilt at this in the markets after the close. It will open at 9:00 this morning, UK time at 60.08, that's $60.08 a share. Share price chart Look at the pressure the stock has been under. The semiconductor industry generally still suffering from distortion originating from the Covid-19 pandemic. Orders soaring during 2020 and 2021 to supply a technology boom, pushing Micron and other chip makers to produce more. Now, in the context of fears of a recession, they are left with excess inventories and are forced to wind down their capital investment budget. Micron Technologies reporting after the bell this evening on this Tuesday, 28th of March.
    • Investor Spotlight: banks buckle, energy fades, tech returns We examine what’s driving the outlook for US fundamentals, and hone in on one stock from each of the financial, energy and tech sectors.            
    • European banking confidence improves significantly as German IFO rises.   Source: Bloomberg   Indices DAX Technical analysis FTSE 100 Financial services Pullback (differential geometry)  Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 28 March 2023  Reports that US officials will expand lending facilities to banks and confirmation of the acquisition of SVB's loans and deposits by First Citizens bank have helped restore a sense of calm to European banks and equity indices overnight. Also providing support, the release of robust macro data as Germany's IFO business climate index rose to 93.3 from 91.1 in February, the highest print since the Russian invasion of Ukraine (chart below). The bulk of the gains in the headline IFO index was driven by firmer expectations for the forward-looking Business expectations, which rose to 91.2 from 88.4 in February. The current conditions index also rose to 95.4 from 93.9 in February. The strong IFO number confirms the upside surprises in last week's flash PMI data. German businesses remain optimistic despite recent banking stress, which is expected to weigh in future months via tighter lending. IFO chart   Source: Trading Economics Given central bank's stubborn focus on inflation, there will be keen interest in European inflation data later this week, which is expected to fall following sharp declines in wholesale energy prices. The flash estimate of Euro Area Harmonised inflation (Friday) is expected to print at 7.1% in March, down from 8.5% in February and well below its peak of 10.6% in October German Headline inflation (Thursday) is expected to fall to 7.3% in March from 8.7% in February. DAX technical analysis The view remains that the Dax completed a five-wave advance (Elliott Wave) from the October 11,829 low to the recent 15720 high and is currently tracing out a corrective pullback. The bounce from the 14617 low is viewed as Wave B or the second wave of the correction, which is missing another leg lower into the 14,400/14,200 support band. However, if the Dax first breaks above trendline resistance and the recent highs 15,700/20 area, it would indicate the correction is complete at the 14,617 low, and the uptrend has resumed. DAX daily chart   Source: TradingView FTSE technical analysis The break below the band of horizontal support 7700/7650 in Mid-March confirms that a medium-term high is in place at the February 8047 high and that the FTSE is currently tracing out a corrective pullback. The bounce from the 7206 low is viewed as Wave B or the second wave of a three-wave correction that has room to extend back to resistance at 7700 before a deeper decline towards 7100/7000 in the weeks ahead. FTSE daily chart   Source: TradingView TradingView: the figures stated are as of March 23rd, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
  • Create New...