I know a number of us here would actively participate in a thread dedicated to the mangement of risk within horse racing. There have been lively debates on the question of staking plans already so I would like to see discussion go beyond that level.

Hi Doc,

I'll take the bait, and do the starting at this stage.... :grin:

For me, risk management is about bank preservation. And bank preservation is being able to predict the maximum drawdown that may occur.

I define maximum drawdown (MaxDD) as being the difference between a bank high, and the lowest point that the bank reaches at any subsequent time from that high. For example, if you start with a 500 unit bank, get a few winners and the bank goes to 650 units, then you hit a bad patch and the bank drops to 450 units, the drawdown at this point is 200 units. If that's the worst retrace that the bank ever does, then you only need a 200 unit bank to ensure that you don't go broke. Not that I'd set aside a 200 unit bank for this particular system, as 1) I'd probably not bet a system with a 200 unit max drawdown, and 2), I'll always allow another 20 to 50% of this as a buffer, as the next MaxDD is just one more bad losing streak away.

Before I understood about MaxDD, I used to consider the longest run of outs as a measure of bank risk. I was naive in thinking that if the LRO was 9, then I'd add a few to be safe, so I'd only need a 13 or 14 unit bank..... I used to bet 5% of my highest bank nonreducing, and proceeded to lose my first two $500 banks...

Since I've started basing my bet size on the MaxDD of any particular system, I have yet to lose an entire betting bank. This is not to say I'm winning on all these banks, just that I haven't exhausted them yet :smile:

Another thing that I do as part of my risk management is to setup different banks for each of my systems. It makes for an interesting day if I have 5 bets from 5 different systems, as I may have 5 different bet sizes to worry about. However, I feel that this allows me to separte the risk for each system, and ensures that I don't rob the proceeds from one system to help another ailing system.

Cheers,
Chris.