03 ts rm
- 2. TS STABLE RISK 1. WHAT IS IT? 2. WHAT’S THE POINT? 3. HOW TO PROGRESS? 4. QUESTIONS? 2
- 3. TS Stable Risk– What is it? A measure of how stable the risk of a strategy is (Does the risk in the strategy change over time?) 1 The MOST IMPORTANT badge at the TS Challenge 2 Stable Risk = Predictable Risk ≠ Low Risk ≠ High Risk 3 A measure of fluctuations in risk in a strategy’s history 3
- 4. TS Stable Risk – What drives it? Impact Rationale • Pro Risk Management means: • Volatility should stay as constant as • For the last 12 TS Periods possible • Risk fluctuation in last 3 • To compare trading strategies on TS periods (day by day) is an apple to apples basis, TS Periods TS Periods less than 1 unit in the TS harmonize across Risk master scale • Frequency of trades • Length of trades (duration) • Market volatility will have • Your role as an asset manager is to shifted over the above 12 risk generate returns within your periods investors’ risk appetite Volatility • Trading will need to account for market volatility if investor volatility is to stay constant 4
- 5. TS STABLE RISK 1. WHAT IS IT? 2. WHAT’S THE POINT? 3. HOW TO PROGRESS? 4. QUESTIONS? 5
- 6. Risk / return Tradeoff Investors are human, and humans are risk-averse Every investor comes with a personal &finite appetite for risk! • The first question an investor will ask • Is not: how much can I make? • Is: how much could I LOSE?? • Stick to this risk target regardless of • Whether you trade frequently or not • Market volatility • Assets you trade over time • Every trader goes through losses • Only bad traders can’t predict their worst loss 6
- 7. All weather money management Market volatility comes and goes… Can you stick to a risk target when markets change? When markets move… Your investors shouldn’t notice! 7
- 8. TS STABLE RISK 1. WHAT IS IT? 2. WHAT’S THE POINT? 3. HOW TO PROGRESS? 4. QUESTIONS? 8
- 9. Stable risk– How to progress? Managing to target risk is not too hard… ONCE you have a risk target!! 1 Sticking to a risk target – is MORE important than winning or losing 2 Simple tools can help you monitor your risk 3 It’s more about the commitment, than the difficulty 9
- 10. Stable risk – TS tools to help you Use the stable Risk Chart in TS To monitor fluctuations in your existing history Insertargráfico de riesgoconstante de Javi vs. gallinaloca 10
- 11. Stable risk – TS tools to help you You can also use the Leverage Management Badge And the Leverage Management Chart Insertargráfico de Consistencia de apalancamiento 11
- 12. TS PERIOD 1. WHAT IS IT? 2. WHAT’S THE POINT? 3. GROWING YOUR TS PERIODS? 4. QUESTIONS? 12
- 13. Where to go from here? • You may want to also check • TS period definition • TS risk definition • This article is a “stub” - Feel like you can improve it? – GREAT! • Feel free to post your questions to the TS wiki – we’ll incorporate via improving its content or on our FAQ • Have suggestions? juan.colon@tradeslide.com can’t wait to hear them • We’d love to credit you for improving it • Contributing to the Q&A sections will boost your mentor score if others like what you post (even questions do!) – helping out will reflect on your community standing 13
- 15. Gráfico de martingala antes de castaña The sky is the limit? 15
- 16. Gráfico de martingalatrascastaña Where did it all go wrong?? 16
- 17. Introducing… the martingale An attractive illusion… But keep your money AWAY from it! • Looks promising!! • Attractive returns • Low initial risk • Seemingly constant (but actually random) risk profile • But it’s TOXIC to investors • When losses hit… • Capital suddenly implodes • With NO prior warning • A very profitable ILLUSION • Market making brokers PROFIT • Martingalers’ profit via IB fees 17
- 18. An appeal from Independent Traders’ nation Martingales that burn investors… Steal YOUR credibility as a trader • Martingales undermine our collective aspiration to manage investor capital • An investor deceived by ILLUSION • Will NEVER trust a trader again • Will speak out against ALL traders • What CAN you do? • NEVER replicate a martingale • If in doubt, demand your signal provider for his TS Score • Expose the fraud for what it is, wherever you come across one 18
- 19. Adjusting for (expected) Trade Duration Gráfico de Fer 19
- 20. Accounting for Correlation Nominal View Actual / TS View Equity EUR 10.000 LONG EUR/USD – 0.1 LOT Open trades SHORT USD/CAD – 0.1 LOT SHORT EUR/CAD – 0.1 LOT EUR / USD (medium volatility) Volatility / USD / CAD (low volatility) Risk EUR / CAD (high volatility) Leverage 2:1 1:1 20
- 21. Adjusting for Asset volatility Gráfico de Fer 21
- 22. Incorporating Market Volatility Gráfico de Fer 22
- 23. TS Leverage Management – What drives it? Impact Rationale • The longer you expect the trade to be, the • See dedicated slide Trade bigger the chance of drift -> the lower you duration should set your nominal leverage Correlation • Rho = +1 - > leverage adds up perfectly • See dedicated slide • Rho = 0 correlation -> cumulative volatility between equals square root of sum of squared volas. Assets • Rho = -1 Hedge, leverage cancels out Asset •Lower leverage for high volatility assets than • See dedicated slide Volatility for low volatility ones Prevailing • Low leverage on stormy markets (obvious, • See dedicated slide Volatility isn’t it :-) but it still catches many unaware! 23
- 24. TS Period – Progression levels Hay queponer la progresion del selloaqui • Rookie • Signal • Pro • 3+ TS • 6+ TS • 12+ TS Periods Periods Periods 24