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A fair amount of risk management thinking is focused on loss aversion.Recently, I have had a slight euphony that such an approach in my case has been detrimental. Risk as a measure should not be considered as a pure mathematical or statistical component of trading. An individuals innate psychology has a vital role in identifying his/her optimum risk management. For ex: What’s the maximum dollar figure you can stomach per trade & how is this related to portfolio size.

As for myself, an application of the law of averages has been a vital driving force in navigating unpredictable price levels in market- which drive the entry to exit of a trade. I now tend to look at risk as a measure of taking profit off the table rather than pure technical or statistical stop loss level. This of course assumes that the strategy in place has been optimized and tested with a viable positive probability. In other words, what I am trying to convey here is “average is good”…and Thanks to a certain gentleman for unknowingly bringing this to my attention!

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