Risk Resonance of a System - what's this?

The most variable part of the trader’s system is the system rules - which govern market entry and exit. There is literally no limit to the number of different rules that can be created and every different rule will trade the market differently in some way and produce different results.

To be of any use, all rules must have what is known as a positive expectation, but even if they possess this, there is still much more that needs to be known about any set of rules.

One of the most important things to discover is what is known as the risk resonance of the rules. Knowing this, the trader will be able to set the size of stake he will take on each trade.

The way the trader’s account behaves while it is being traded, reveals the degree of drawdown experienced and this indicates the level of risk being taken. Finding the risk resonance of the system rules during the trader’s routine evaluation procedure allows him to trade at the right level.

 

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