An introduction on Risk Management (Oct 17th Report)

“Also fortunate, I suffered paper cuts and avoided any gashes. It is the gashes that can take a trader out of the game. I closed 10 tranches this past week at an average loss of 18 basis points or a total loss of 181 BPs (1.8% of total capital). Interestingly, minus 18 is my average tranche loss dating back to the start of the Factor Service in 2014.
An interesting irony exists. My observation is that most novice/aspiring traders hate taking small losses out of worry that the markets in which they are stopped will turn around and go their way. Yet, an unwillingness to accept many small losses actually leads to some really big losses – and it is the big losses that badly end a trading venture.
Taking my pick between taking many small losses only to be flat when some anticipated moves occur on one hand and taking a few inevitable huge losses on one hand and my choice is easy – I will take the small losses even if it means missing some big moves because I was stopped out prematurely.
Factor members, your policy on taking losses – BIG or small – is the most important decision you must make regarding your trading operations. “