THE HAnDbook of TECHnICAl AnAlysIsand hence puts more strain on the trader to consistently trade above the minimum
winning percentage of the system. Unfortunately, winning percentage is largely an
uncontrollable variable. Therefore, the term risk does not only refer to the loss
experienced when a stop is triggered but it also refers to the reward characteristics
over the longer term. Therefore both $reward and $risk represent risk over the
longer term. This definition of risk also aligns itself with the general understand-
ing that any injection of capital into the market is subject to risk. See Figure 28.18.
Figure 28.19 shows the various passive money management components and
stochastic exit mechanisms and how they relate to the term structure of reward
and risk. These passive components, together with the stochastic exit mechanisms,
may be used to help diminish the effects of long‐term risk on the system caused by
the use of fixed take profit and stoploss orders.
figure 28.18 Term Structure Characteristics of Reward and Risk.figure 28.19 Techniques for Reducing Longer‐Term Risk.