Risk Management

At GWS, we understand that the long term survivability of our business depends on really understanding risk.

In the world of business, it is estimated that only 1% of all new businesses survive for more than ten years. In the world of trading, the statistics are far more dire. Most new traders may have a sound methodology and superior analysis skills, but with no understanding of position sizing and risk management they have a far greater risk of ruin than any of them ever realise - until they go broke. In the business of trading, the fact is that it is inevitable that there will be trades that lose money. It is also inevitable that every trader experiences strings of losing trades far longer and losing trades far larger than they ever expected.

As a rule, most professional traders limit their individual trade risk to no greater than 2% of their total risk capital and we are no different. We have a risk management methodology that minimises the risk on any given trade, which maximises our survivability over the long term. This allows us to last long enough to experience the true expectancy in our system and ride out any unfavourable streaks which we know will most definitely occur. We believe in allowing enough leeway within a trade to minimise the effects of market noise, but will not hesitate to take a small loss once we know that we are wrong. If we are able to manage our risk to the point where we are in profit for the trade then great! However, we will not grab at small profits either, because we know to ensure a positive expectation we must allow the profits to run to cover the small losses that we have to incur.

To ensure that we are not blindsided by extraordinary market events, we accept and keep in the forefront of our thinking the possibility that our worst losing trade or streak is ahead of us. Therefore we do not operate at maximal risk capacity. We allow factors of safety and perform simulations of worst case permutations of trades within a Monte Carlo engine - and most importantly we stick to these predefined risk figures. This may not appeal to the aggressive risk taking trader who wishes to shoot for triple digit returns year on year, however we do not trade for the adrenaline rush or ROI bragging rights - we trade for long term profitability and survivability.