Describes the 7 Buckets in the Tradeslide Risk Masterscale - as well as how Tradeslide Risk describes risk @ 95% confidence for a hypothetical investor

1. Risk
www.tradeslide.com

2. INDEX
1. WHAT IS IT?
2. WHAT’S THE POINT?
3. QUESTIONS?
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3. Risk – What is it?
The risk to be expected when investing in a given strategy
How much could a strategy lose an investor?
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Worst loss, at 95% percentile (i.e. Equity at Risk), over 1 Month
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Takes into account actual days traded (no volatility without open trades)
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We report min and max Risk in a selected period – informs of risk stability
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4. The 7 Bucket Risk Scale
*VaR = Value at Risk, in % of account equity
•
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Max and Min VaR in
the selected period
Click here to view the Risk
vs. Drawdown chart
A VaR of 5.5% means: in one month out of
twenty trading months, losses will be higher
than 5.5% of account balance
VaR indicates the loss threshold – losses
could exceed 5.5% by varying amounts
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7
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Buckets
VaR @ 95% = loss threshold to be exceeded
one every 20 months
The 7 risk buckets indicate growing VaR
levels. VaR for bucket 2 is 2.5 times the VaR
of bucket 1 – see example on next page
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5. Risk – TS tools to track it
Use the Risk vs. Drawdown chart (Trader -> Investability Report-> Show charts)
Track the evolution of a trader’s risk in terms of monthly VaR at 95%
A prolonged period with red bars means
either:
-
-
Monthly VaR
the trader’s risk increased during the
following month (note an increase in the
black curve!); or
the trader is in the 5% region of exception
(the black curve should remain constant)
If your risk level is not constant, investors will
not know what risk they should expect when
investing in you!
Green: Monthly VaR > Drawdown
Red: Monthly VaR < Drawdown
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6. Risk – 7 Buckets
Bucket
1 Month 95% VaR
Comparable Asset
1
.95%
AAA Money Market Fund
2
2.37%
3-5 Year Maturity AAA Bond
3
5.87%
Risk of a 1:1 leverage EUR/USD
4
14.23%
FTSE 100 or S&P 500 index
5
32.83%
Small Cap in Technology Sector
6
66.71%
Very high stakes gambling
7
98.1%
The lottery
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7. Risk vs. No Risk variable
Risk for traders is bi-variate
There is risk when a strategy is in the market, there isn’t if not
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VaR tracks two independent variables
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Risk when positions are open
(looks back 21 trading days)
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Non existent for days with no open
trades (no volatility in those days)
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95% probability therefore takes into account
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How risky a strategy is when active
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How active it is
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8. INDEX
1. WHAT IS IT?
2. WHAT’S THE POINT?
3. QUESTIONS?
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9. Risk Benchmarking
There isn’t a unified measure of risk across independent traders
Our risk buckets are a rigorous, but practical attempt to introduce it
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Risk buckets are based on standard
investment management risk measures –
VaR in particular
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Risk offers traders an independent risk
assessment compatible with external
benchmarks – which is an important mental
shift towards invest-ability
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We sincerely hope that using these will help
independent traders managing
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PAMM accounts
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Mirror-trading sites
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Signal providers
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10. INDEX
1. WHAT IS IT?
2. WHAT’S THE POINT?
3. QUESTIONS?
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11. Questions?
Trading is hard – no wonder there are unanswered questions!
(Why not, together, build a Knowledge Base that answers them all?)
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The Knowledge Base contains TS Mentors’
answers to all your questions!
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Mentors are Traders like you who
enjoy helping out, and are voted
very good at it, AND
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Trading educators hand-picked for
quality and broker independence,
who pitch their materials
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Want to contribute? Great!
•
Post an article / Post
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Ask or answer questions
•
Rate fellow traders’ contributions
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12. Can you do better?
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This article is a “stub” (an unfinished entry that MUST be improved)
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We need your questions & feedback to improve it!
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Feel free to post your questions to the TS Knowledge Base
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Have suggestions?
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theowl@tradeslide.com can’t wait to hear them
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We’d love to credit you for improving our content
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Contributing to the Q&A sections will boost your mentor score if others like what you post
(even questions do!) – helping out will reflect on your community standing, which means
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More traders will visit the URL on your profile
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When they visit, they’ll request your mentoring!
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If they do it enough, we’ll offer invitations to you
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