Risk and Return

"The pros look for returns
that are weighted in their favor."

Every professional trader knows what his trading goals are. They are his goals for return required and the limit of the risk he is prepared to take to get that return.

These are the numbers he uses in his system evaluation, to see if any system is capable of meeting his requirements.

It may be possible to find a system that more than meets his return criteria, without exceeding his risk limit level. The more this situation applies, the more the 'odds' are weighted in his favor and the more attractive the system will be.

The risk resonance tests that he carries out are what will reveal these numbers.

When a trader finds a system where the ‘odds are in his favor’, he has the option of either taking the higher return alternative, or lowering his return requirement and also lowering the risk to which he will be exposed.

Using the right method is what gives these traders their advantage and increases their chances of success.

Professional traders are always on the alert for systems that can help them improve their risk/return ratios.

Newcomers to trading should devote all the time and resource they can to finding good methods of trading. That is the path to success.

 

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Copyright David Bromley 2006
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