I often hear in trading risk management is everything. Many times the trading gurus, book writers, newsletter sellers, black box sellers are the one proclaiming the diktat that 'risk management is everything'. When you hear such absolute statement there is always second side to it. In most cases it is and " we will tell you how to manage it in our seminar, automated software, newsletter...."
Most of the times such emphasis on a single element is misguided. Sometime back there was an anonymous commentator on this blog claiming entries do not matter, exit is important. As I have said earlier all four element of trading market selection, entries, exits, and risk management are important.
If you look at the risk management elements, today most professional traders follow good principals of risk management. So how come some outperform and others under perform. Or take the mutual funds, they follow very sound risk management principles, they have strict well defined limits on size of position, they frequently ( sometime on daily basis) adjust their risk to maintain their individual and sector risk under control. So how come the vast majority of them under perform the market.
Position sizing as holy grail of trading success is being offered in expensive courses and is being parroted by everyone around. So what explains performance gap of traders following them.
If you take a more holistic approach to risk management you will think very differently and strategies differently. Market selection can reduce your risk. Your entry criteria can reduce your risk. Your exit strategy can reduce your risk. Your frequency of trading can reduce your risk. Avoiding and favoring certain market periods can reduce your risk.Weighing your ideas differently can reduce your risk. There is much more to risk management than position sizing and R multiples.