The meaning of risk...

[Ceo1982]

Many people speak about risk. But the true meaning of risk is merely a reflection of what a trader perceives to be an edge. What do you all believe about the nature of risk? Perhapes its volitility expressed by ATR, perceived probabilities or support/resistance points. reply to this post with your perception of risk. And explain why you feel your method is superior to others.



Sincerely
Ed S.

[jsoft]

Risk is not a perception, since perception is subjective.

Anyway, Monte Carlo simulation is one of most common ways to asses the risk. Based on the trading system parameters (i.e. ratios such as winners/losers, avr win/avr looser, leverage, etc.) one can simulate what it is going to be the end result. Basically simulation is run thousands of time and then results are analysed.

What I'm looking for when comparing 2 systems are risk of ruin, average profit and average drawdown. I can only add that risk management is the most important key in trading. I couldn't count traders who appeared to be successful for quite some time just to blow their accounts at the end.