BarroMetrics Views: Subjective Risk Management
In preparing for my talk on Risk Management sponsored by CMC Markets (see attachment: Art of Trading.pdf), it struck how important a role the subjective aspects are for Risk Management.
Our Vision and Goals set the scene for the driver of our Trading Rules (of which Trade Management forms a part; Trade Management is one aspect of Risk Management) and Money Management Rules. In the latter case, our subjective risk profile defines our trading philosophy; in turn our risk profile dictates the type of Money Management Rules we apply.
In my case for example, I first seek to preserve my capital through the consistent execution of my Trading rules and Risk Management Rules. Only when that safety is secured will I seek superior returns.
This means that sometimes I will forego what appears to be a superior reward to risk because I assess that the probability of success is too low; other times, I’ll exit a trade at break-even or a small loss only to re-enter at a worse off price - because at the time of the exit, I assessed that the probability of success was no longer in my favour.
The approach may not work for every one, but it works well enough for me.
Refer this blog post to a friend or colleague…
