"Very" and "extreme" risk systems

Oscar Wilde once said: “Everything popular is wrong”.

I, and possibly others, have noticed many popular systems here on C2 have very high in-trade risks.(flagged with colors and words like “very” or “extreme” in the trade lists)

These systems are often high winner systems, and thus popular. It’s completely mad to have in-trade drawdowns of -17%! An open loss of let’s say -$7000 to finally, get a relatively small $500 profit?? One must be a fool I would say, but many subscribers only have $$$ in the untrained eyes.

I notice Collective2 does an admirable effort to warn subscribers (open loss indicator) but honestly it’s not effective if you notice:

- number of trackers such a system has

- the times viewed it is

- the rising number of deplorable reviews the last months

Now you can’t change what the crowd thinks nor does, but if you can help them, you should.

There should be more effective measures to warn subscribers for risky systems.

Now, who knows, because I don’t.

Hi Eric,

Whilst I think you are quite right in the case of systems that make independent trades, I’d like to add a caveat. Consider the case where options are traded, either for extra income or as a protective hedge. In such cases two or more trades are made as different legs of one position where the risk of the compound position is what matters, not the risk of each individual trade.

Take the simple example of a covered call strategy under the following scenario: you buy shares of XYZ corp at $35 and simultaneously sell call options at a strike price of $40 for $2. Now:

XYZ first goes up to $45. The stock is showing a profit of $10 and the call option, which may be worth $7 now, is showing a loss of $5 resulting in a paper profit for the compound position of $5.

Then XYZ goes back down to $41.50 at option expiration time. The stock is sold for a profit of $6.50 and the short call option is bought back for $1.50, a $0.50 profit.

Result of compound position = $7 profit.

The stock trade will in this case probably have been flagged with a “low” risk. However the call option trade (worth a maximum of $2 profit) will have gone to a $5 loss then back to finish at a $0.50 profit, and therefore be flagged with a “high” or “extreme” risk.

If these two trades had been made independently instead of together at the same time then labelling each with a risk level is a valid thing to do.

But since the two trades were concurrent during the surge in XYZ stock price, it is not valid to label each trade independently; in the example above the position as a whole went up to a profit of $5 then finished at a profit of $7. Altogether a low risk episode in this case.

Nothing wrong with high and extreme risk as long as you know how to trade it…its all about risk management.



Huh? “Risk management?” Extreme risk can’t be extenuated (I’m not talking about options or hedging)

That label “Extreme” in the trade list of a system means: willing to accept high drawdowns (read: not accepting a loss building up against you) on 1 single position. You can’t argue with that.

High winning percentage systems (high as in: > 60% correct) indeed are verrrry popular but mostly verrrry wrong and dangerous. They often are not mechanical (regardless the system description) and have a trader with a big ego behind it.

“Ego” argues, but you can’t argue with the markets.

You are correct, I cannot argue with that because not accepting a loss means poor management. There are some trades on my system that are labled "Very" and "Extreme" however I am managing them and take my losses when I am wrong…we can not be right on every trade.

No risk means no reward.



Ok. I’m interested in what you mean by “managing” an extreme risk trade. In what way specifically?

I.e. at one point you had an open loss of 26% of your capital from 1 position. No stop loss was once hit. Sure, the position might turn into your favor again, as it did. It might do so with the next, and another, an another and then… bang it keeps going against you. -30% -40%… Like so many systems here.

I’m interested in this too.

Thanks for hte reply.

Some things I do to manage risk:

Risk vs. Reward: The reward should always outweigh the risk taken on a trade. I am willing to be aggressive and risk 25% loss of the account if the reward is 50% or 100% gain.

Average In and Out: Avoid losing on small moves and market noise and trade the big picture. One thing that still helps me trade today is averaging.

Go for Home Runs: Dont be afraid to add to your trades. When I am up a lot I tend to add to it and lower the stop… If you are in the money that usually means you are with the trend and it should continue to go your way.

Take your losses if you are wrong: Ask yourself if you would do the trade again now? If no then get out.

Take your winnings to the bank: If you are up crazy like 500 or 1000% withdraw half your cash.



Steve: given the new situation on your system AgressiveFX I would like to hear what went wrong in you ‘managing the risk’.

No offence but that I guess these situations are the main reason this thread was started.