Tech research or management of rsk - which is more important

Hi guys,

I want to ask - which is the more important factor for success in trading ? Is it the technical anlsis or is it getting the rsik management right ?

I have been trying to understand and learn how to trade. As I was thinking about what I am learning, a littl thought occurred to me based on waht I read. I read on different threads:

  • the writers do not go with complicated tech analsis

  • Rsik management is very important.

  • Rsik management is more important than tech anlsis

  • Writer does not take long for tech anlsis

Based on the above points can we make a statement that: Tech analsis is not complicated to learn sicne many use simple tech anl methods and hence learning the basics well is important rather than highly complicated methods. More imprtant is rsk reward ratio and planning the trades according to this ?

Is this correct ?

I offer two “answers” (the inverted commas denote that they might not really answer the question :8: ) …

  1. It’s hard to answer because the reality is that in order to trade successfully, there are a lot of factors involved and you have to get [B][U]all[/U][/B] of them right: any [I]one[/I] of them being defective will prevent success. For this reason, “greater importance” isn’t really a particularly valid or helpful concept, and …

  2. The answer’s going to vary between different people, in accordance with their existing skills and education.

Also hard to answer, but I very strongly suspect that most aspiring traders instinctively put their own emphasis on technical analysis at the expense of risk management, when they ought to be doing exactly the opposite.

I also very strongly suspect that they do this for the same reasons that they confuse “trade [I]entries[/I]” with “trading [I]systems[/I]” and imagine that trading is primarily about profit maximisation rather than risk management.

I think there’s an element of truth in that, yes - certainly … but I also think that your phrase “technical analysis is not complicated to learn” might be a [I]little[/I] bit optimistic, for many people.

(I definitely share the general perspective of your whole post above, though.)

Hi Element,

In a way I agree with the quoted text above, it’s certainly the easier part of the [U][B]two required skills when it comes to using TA effectively[/B][/U].

[B]The first part[/B] is [U]‘learning how to apply TA’[/U] - I think the average person can learn this over time, it’s certainly not complex and is in most cases logical.

[B]The second part[/B] is [U]‘learning how to quantify TA so that we can replicate success and identify loss generating variables’[/U] - I think the average person will not be able to learn this over time - it can be complex and not appear logical.

It’s the second part which really has to mastered if you as a trader are hoping to create a repeatable system (regardless of this being manual or automated). If a trader fails to quantify their TA correctly in its true sense, then they are simply a discretionary trader with no proven statistical way of profits. They can still be profitable, however I certainly would not like to fall into that category.

Hi guys,

Thank you for the replies.

[B]Hi Lexys[/B]

  1. What is a trading system ? What does it comprise of ? Do you refer to the strategy as a whole ?

  2. If (as I read in threads) traders are using simple (when I ask how complex is your technical anlsis method before you trade, I have received replies saying it is very simple and if it is more complex then more inaccurate it may be) how could it also be that tech anl is complicated to learn - in that these two statements seem to contradict.

[B]Hi Jezzode,[/B]

The second part is ‘learning how to quantify TA so that we can replicate success and identify loss generating variables’ - I think the average person will not be able to learn this over time - it can be complex and not appear logical.

Could you please give an example of quantifying TA in its true sense ? Please explain a bit more what you mean by this ?

Yes, I meant “the whole thing” including money-management, stop-losses, exits, trade management, etc. etc. … some people believe that “defined entry parameters” are almost all that matter, and that if they enter at the right time, everything else will suddenly, magically, somehow resolve itself or not matter very much, because “the profitability is determined [I]primarily[/I] by the entry” ([B]complete[/B] nonsense, obviously, but quite widely-believed nonsense! ).

Well, I hear you, but I don’t think they’re [I]really[/I] contradictory, for a few reasons … first, just identifying what’s “simple” often requires learning a lot that’s complicated, too; secondly, there are thousands of “simple” methods most of which [U]don’t[/U] work even though a few probably do, and distinguishing between them is far from “simple”; thirdly, learning how to execute simple things accurately and reliably isn’t [I]necessarily[/I] a whole lot easier than learning how to execute “more complicated” things anyway. My own entry-methods are perfectly “simple”, but my trade management isn’t, really, and it required a lot of learning and analysis to develop, even though I could perhaps sit and trade in front of someone and make it [I][U]look[/U][/I] easy ("[I]ars est celare artem[/I]", as the saying goes).

Or something like that, anyway … :8:

Hi Lexys,

Thank you again for the reply. Just considering the entry, exit and the SL and TP part of the trade without the management part, would the identifying / adopting of the simple method (example - three ducks method ) not be made a whole lot easier by forums like these and other sources of information including books etc. written by people who have done it ? There is no inventing of the wheel involved correct ? I am wondering - understanding how to do it is not that complicated and add to it common sense and knowing when to back out (which is helped by erring on the side of caution) is a substantial chunk of what it takes to be successful at trading ?

What do you say on this ?

Technical analysis is your EDGE. (technical research)
Money Management help to buffer losses during downswing. (risk management)

Without edge, your account can never grow.
just like baccarat. house edge always present. no +ve or -ve progression betting can beat the game. but if coupled with clever bankroll management. maybe there is some chance to make some money out of baccarat once in a while. if lady luck is smiling on you.

the same goes for forex trading. if the technical analysis is inaccurate. meaning -ve expectation trend determination. no risk management can save you.

with accurate technical analysis coupled with risk management. account can grow. speed of growth depends on how big your edge provides.

edge is define as accuracy of technical analysis.


Hi alpha,

Thank you for the reply. if you have 10 trades, 2 successful of 100 ticks each, and 8 wrong of 20 ticks each, you are still 40 ticks in front. This is what got me to think and realize the importance of mony mngement that is so often mentioned in this forum. Agreed tech anl is the edge, but inclined to the fact for retail traders are more likely to err in their determination of the market direction and hence better management and principles of probability along with the EDGE will help be successful at trading ? what do you think ?

Risk Reward again. R.R. is inconsequential.

if your risk 1 : reward 3
hit rate 10%
profitable? no.

if hit rate 80%
risk 2 : reward 1
profitable? yes

what will it matter if you use rr 1:3 or 2:1, when your hit rate is 80%?

risk reward is immaterial to bankroll management.

coin flip is 50/50. if you err more than 50% in your trend determination.whats the point in trading forex. just play baccarat. you might have better luck.