TS Risk Stability Element
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The document discusses the significance of stable risk (RS) in trading, emphasizing that investors expect consistent risk levels that align with their initial investment expectations. It outlines how sudden changes in risk can lead to a loss of investor confidence and potential capital calls, highlighting the necessity for risk management to be predictable and steady. Additionally, the document offers insights on improving risk stability through better leverage decisions and invites traders to contribute to a knowledge base for continuous improvement in trading practices.
TS Risk Stability Element
- 2. Why is stable risk (Rs element) investable? • If you trade to manage investor capital, two risk appetites come into play • Yours – as defined by how you manage your own capital • Your investors – for their investment in your trading • Investors expect risk at any time to match expected risk when they invested – and will monitor any deviations very closely • Deviations in risk – particularly sudden ones – will make investors lose confidence in your risk management, and trigger capital calls • This is the reason why stable risk matters • The level of risk DOES NOT matter • Ideally, risk should stay constant • If risk changes, change should take place as slowly as possible over time, allowing investors to re-adjust their leverage levels with respect to you 2
- 3. INDEX 1. UNDERSTANDING RS 2. IMPROVING ON RS 3. QUESTIONS? 3
- 4. Rs - Risk stability – What is it? We track worst potential loss in a strategy over time Risk stability is the difference between max and min potential loss 1 A VERY IMPORTANT badge at the TS Challenge, it has an important weight in the TS Score 2 Stable Risk = Predictable Risk = Investable Risk (if it delivers returns :-) 3 Designed to re-assure investors that risk is managed to a PREDICTABLE level 4
- 5. Rs – An example for stable risk Maximum risk in last month Risk in this specific date Minimum risk in last month A Difference > 1 will penalize your Risk Stability 5
- 6. Rs – An example for unstable risk Wouldn’t this make you nervous? 6
- 7. INDEX 1. UNDERSTANDING RS 2. IMPROVING ON RS 3. QUESTIONS? 7
- 8. Rs – How to improve? Can investors trust that a strategy won’t overstep their risk appetite? If they don’t trust, they won’t invest 1 Consider trade duration, market and asset volatility in leverage decisions 2 Improvements to leverage consistency (Lc) will likely improve risk stability 3 Experiment with the effects of your leverage decisions on your risk profile 4 Use our Risk Manager for free to improve your Lc and Rs badges 8
- 9. INDEX 1. UNDERSTANDING RS 2. IMPROVING ON RS 3. QUESTIONS? 9
- 10. Questions? Trading is hard – no wonder there are unanswered questions! (Why not, together, build a Knowledge Base that answers them all?) • The Knowledge Base contains TS Mentors’ answers to all your questions! • Mentors are Traders like you who enjoy helping out, and are voted very good at it, AND • Trading educators hand-picked for quality and broker independence, who pitch their materials • Want to contribute? Great! • Post an article / Post • Ask or answer questions • Rate fellow traders’ contributions 10
- 11. Can you do better? • This article is a “stub” (an unfinished entry that MUST be improved) • We need your questions & feedback to improve it! • Feel free to post your questions to the TS Knowledge Base • Have suggestions? • theowl@tradeslide.com can’t wait to hear them • We’d love to credit you for improving our content • Contributing to this section will boost your mentor score if others like what you post – helping out will reflect on your community standing, which means • More traders will visit the URL on your profile • When they visit, they’ll request your mentoring! 11