Last Updated on June 19, 2022 by Quantified Trading
Ever so often I read how important risk management is. Yes, it might be important but my experience has told me it’s of no use to predefine risk and AFTER make strategies based on your risk tolerance. In my opinion that is doing it backward. I have tested thousands of trading strategies (I test around 1-5 ideas each day!) and stop loss and profit targets, in general, deteriorate the systems. Yes, this might be against “conventional wisdom” but I recommend testing it yourself.
Personally, I couldn’t care less about money management. The reason why is that I trade a lot of different stocks, systems, and strategies. Any stock has an insignificant impact on my overall performance and any strategy will not ruin my account. This is the only holy grail in trading.
Sometimes my systems are correlated but in general not. I always have a balanced mix between long and short, never leaning too much in either direction. So far in 2013, I have lost an incredible amount on the short side. Fortunately, I have made more on the long side.
I trade more systems/strategies because I think it’s better to trade more than try to develop better but fewer systems. Most likely I end up curve fitting by implementing “better” systems. Many of my strategies have a very rough equity curve, to say the least. However, when adding 30 or so strategies the equity curve gets pretty nice. So far in 2013 I have day traded all 34 days and only lost money on 4 days. My EOD has had a hit ratio of 80%. Individually none of my systems have a higher win ratio than 60%.
I recommend trading more and diversifying instead of using conventional risk management.