Trader Risk Profiling and Position Analysis
summarizing behavioral profile according to price
and time of entry
Generally speaking, with the exclusion of late entries, the higher the price of a long
entry, the more aggressive in price and conservative in time of entry it becomes. In
similar fashion, with the exclusion of late entries, the lower the price of a short entry,
the more aggressive in price and conservative in time of entry it becomes. But at high
levels of leverage, the degree of aggressiveness and conservativeness with respect to
the time of entry becomes increasingly more important than that of the price on entry.On risk size
We must also consider the risk size, when trying to define aggressive or conserva-
tive behavior, be it in percentage of capital or simple absolute dollar terms.
Though we have already discussed how price and time affect the way we cat-
egorize aggressive and conservative behavior, we must also consider the amount
of capital at risk during entries and exits.
To assess whether the risk size involved is aggressive or conservative, we need
to compare the capital at risk between different entries and exits. As expected, it
is a relative measure.
See Figure 26.9. Using A as our benchmark or baseline entry for risk size, we
see clearly that entry B is comparatively more conservative in terms of risk size
since the amount of risk capital exposed on entry is less than that in A. In B, the
trader risked 80 shares at $100, making the total dollar risk $8,000, which is less
than the $10,000 capital invested in A. Scenario C is considered more aggressive
in risk size, when compared to A or B. But at entry D, though buying in at a very
unfavorable price of $125, the maximum dollar risk exposed is identical to that in
A. Hence we say that entry D is neutral in risk size on entry when compared to A.When do Conservative entries transform into
aggressive Ones?
Let us consider the following scenario depicted in Figure 26.10. Assume that we
have a breakout of a prior resistance level at $100. As we now know, any longFigure 26.9 Risk Profile for Long Entries (Time, Price, and Risk Size).