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good luck in your search then snake
bullmarket
bullmarket
So in a simplistic case, if you find from your paper trading or whatever simulation technique you use, that given your predetermined entry signals being met (from chart patterns, indicators or whatever) the share price continues to rise on at least the next day 75 times out of a hundred then your entry criteria being met on any single occasion will have a 75% probability of giving a profitable trade for the next day in the future. So in this simplistic example the risk of successful trade is 75% and the risk of a failed trade is 25% imo.
to be consistent then you would also say in my example of the weighted coin coming up heads 600 times out of 1000 that there is still a 50% probability of it coming up heads on any one toss when mathematically that is incorrect and the correct answer is clearly a 60% probability of a head coming up on any one spin.
bullmarket said:oh dear snake
my post you extracted that quote from was directed at anyone who wants to read it and not specifically at you and was generally in reply to tech/a's M&M's post and had nothing to do with you whatsoever
keep trying though - at least you're entertaining, for me at least
cheers
bullmarket
Ok you do that. When you come back please elaborate on this:anyway, I better go for now - I'll pop back in later this week
...being your comment, and an investor I am drawing your attention to the words in red.Calculating risk is by no means a trvial task and so can require extensive number crunching which the average trader would not even consider doing - and I suppose that is why no-one has posted any algorithms for actually calculating risk for a particular scenario
bullmarket said:tech/a
try thinking of it this way and it might become clearer - the weighted coin example is similar to a 'loaded' dice.
now in a fair dice all six numbers will have a 1/6 probability of coming up on any one throw, but in a 'loaded' dice at least one of the 6 possible outcomes will have a higher probability of coming up on any one throw....it's as simple as that
good night
bullmarket
I have generally thought that risk and probability have some bearing on each other - but it is an interesting concept Tech is trying to get across. Not easy going though as this thread seems to have gone off on a tangent discussing probabilitytech/a said:.... Risk is not to be confused with probability---Risk is not to be confused with probability.---you get the picture. ...
The correlation of holdings, positions should be known to understand the risk being carried. If your positions are highly correlated then you are taking on too much risk. All positions behave alike increasing your drawdowns for example.
In my personal case I am starting to look at property trusts that invest in the European commercial, industrial, retail and leisure property markets because from what I am seeing the prospective yields are about the same as trusts I am invested in that invest in US property atm and a little higher than what the LPT's in Australia are averaging atm.
Also, since my number 1 priority is income nowadays I personally don't mind if one goes up a bit while another goes down. Obviously I'd like all my investments to be going up at the same time all the time but that is just not going to happen and I certainly don't want to be spending hours on end doing research and analysis trying to find which sector/region etc is most likely to fire and risk getting it wrong. Mrs bullmarket already thinks I spend too much time on the pc as it is
I (and more importantly mrs bullmarket ) are happy with the returns/income we are getting as they are meeting our objectives and I am reasonably confident that in say 5-10 years time the LPT's I am invested in will be higher in value, everything else being equal - how much? only time will tell but it's not my first priority.
But, again, you are not diversified out of the same two sectors. Different continents..........brings up an interesting component of risk, and this is the Concept of CORRELATION
Financial markets have become increasingly correlated under specific conditions, for an example look no further back than 1998, and Long Term Capital Management.
Correlation, and fat tails go hand in hand, and are an essential component of risk, and risk management.
Correlation is a statistical term, and again is calculated via a statistical significance, usually to two standard deviations, and a concurrent confidence interval.
Fat tails are of course outlier events that exceed two, three, four standard deviations, and should statistically only occur once every million years or so.
Unfortunately, they seem to crop up every couple of years or so.
A robust risk management model must, or it would be eminently sensible to at least entertain the thought of incorporating outliers into your risk model, and generating a strategy that would attempt to minimise the damage, if diversification, suddenly correlated to 1
I agree in principle with what you say but now you are starting to talk about the extent of diversification within a portfolio to minimise risk.
Let me refer you to my signature below each post. It clearly states that views I post are suitable for my personal circumstances and so may or may not be suitable for other people.
For me personally, being an income investor, being solely invested in those two sectors makes it easy for me to achieve my investment objectives and still be well within my personal risk profile.
I am diversifying within those two sectors and not beyond atm and am happy with the returns I am getting and I am very comfortable with the level of risk I am carrying at the moment.
And all of the above obviously by no means suggest others should blindly copy what I am doing. It works well for me and obviously may or may not work for others depending on their objectives and risk profiles.
"Risk has two components:
uncertainty, and
exposure.
If either is not present, there is no risk.
Suppose a man jumps out of an airplane with a parachute on his back. He may be uncertain as to whether or not the chute will open. He is taking risk because he is exposed to that uncertainty. If the chute fails to open, he will suffer personally.
Now suppose the man jumps out of the plane without a parachute on his back. If he is certain to die, he faces no risk. Risk requires exposure and uncertainty.
A common misperception is the notion that the more uncorrelated risks a portfolio is exposed to, the lower that portfolio's overall market risk will be.
Please correct me if I am wrong, but are we talking about managing the 'putting your money where your mouth is type risk? That is managing the the uncertainty and fear of a possible loss?
While I dont mind discussion on all or any of Duc's points It could well fragment the main purpose of what I originally had in mind being.
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