Back on the topic of risk management, here goes a long post :wink:

I've been doing various analysis over the past few days and some results and ideas have come to mind after running numerous scenarios.

These are not gospel, just my ideas after observation for minimising risk.

1. Calculate the risk of your "system" by comparing the maximum drawdown with POT.

Stebbo demonstrated this earlier and he got me thinking - thanks stebbo!

Ideally your risk must be less than your POT.
Otherwise your risk is greater than your profit and sooner or later you'll bust.

The greater the difference or ratio between POT and risk e.g. 2:1 the better.

This is no guarantee of future profits, but based on the data available, this would be perhaps the best guide.

Maximum Drawdown should always be less than the profit, as the entry point of a series of bets can make or break or even give false optimism.

Example: Start with $1,000 have a good run and win $800. Have a bad run next and lose $1,000 but you're only down $200 on your initial bank.
Had you entered at the second point you'd have lost your entire bank.

2. An increase massive increase in profit due to staking can also give false optimism.

Elsewhere I've heard:
"But it's working"
"I haven't gone bust yet"
"I don't give a ### about POT, profit is all that matters"

At the end of the day profit is not all that matters, to me, risk is all that matters.

What's the use in making 500% profit if the risk of losing it all is 600% or even 1000%?

Sooner or later all that profit will be gone unless some form of insurance or safeguard is applied.

3. As a guideline to system viability, I use the profit divided by the average win dividend.
This is a guide only as a couple of longshots will distort the result.

Example:
Profit is $79.50
Average Dividend is $2.10

SV calculation is $79.50 / $2.10 = 37.86

So the profit comes from 37 plus winners which is very good.

While this is not exactly Risk Management by the general definition, it is salient to the argument, because the continuing viability of a "system" (for want of a better word) must be considered the major risk of the investment regardless of the staking or investment method.

Hope this generates some discussion.