Skip to main content
Track Risk-reward ratio
8 / 27
Search the archiveLibrary
Library

2004issue C071-5

A critique of one-procedure trading decisions

This archive article reads a historical decision workflow in which entry, exit and abstention are meant to be one testable procedure, then asks how stop-loss and risk-reward filters bound that procedure before a trade is placed.

  • The registered process turns rule inputs, market state and execution constraints into a signal meant to make entry, exit and abstention testable as one procedure.
  • A stop-loss and a risk-reward ratio are filters that bound a loss or exposure decision before entry and throughout the position.
  • Those filters read account equity, volatility, stop distance and exposure rather than generating the signal themselves.
  • Editorial reading: the critique is whether the filters sit inside that procedure or cut it off before the procedure can be tested as a whole.
Entries in this reading3 entries
Current trackRisk-reward ratio78 readingsStop-loss order297 readingsTrading psychology process376 readings

What the process is for

The registered trading psychology process takes rule inputs, market state and execution constraints and holds them for the system holding period. Its stated use is to make entry, exit and abstention rules testable as one procedure. The output is a signal, not a separate price forecast.

The archive facts describe that historical workflow. They do not, on their own, say how the parts should be ordered when a live decision is made.

Monthly principal and interest on a 30-year mortgage

The fixed monthly check stays flat near $880 while the interest slice shrinks and the principal slice grows, so most early cash flow looks like coupon and most late cash flow is paydown. Amounts were read off the printed Figure 1 curves for the $100,000, 10 percent, 360-month loan given in the interview.
The fixed monthly check stays flat near $880 while the interest slice shrinks and the principal slice grows, so most early cash flow looks like coupon and most late cash flow is paydown. Amounts were read off the printed Figure 1 curves for the $100,000, 10 percent, 360-month loan given in the interview.30-year fixed-rate home mortgage · 360 monthly payments

Interview terms are a $100,000 balance at 10 percent with a stated $877.57 monthly payment. The magazine raster is coarse, so plotted amounts are rounded to the nearest $10 and are not an amortization table.

Where the filters sit

A stop-loss and a risk-reward ratio are registered as filters, not as the signal. Both use account equity, volatility, stop distance and exposure. Both are meant to keep a loss or exposure decision bounded before a trade is placed, and to remain in force throughout the position.

The filters therefore sit beside the procedure rather than replacing it. They can accept or reject exposure. They do not rewrite the entry, exit and abstention rules into a different method.

The tension in the decision process

The topic is the decision process inside a trading system. Entry, exit and abstention are supposed to be one procedure. The filters are supposed to bound loss and exposure before that procedure becomes an open position.

Editorial reading: a system can apply each registered rule and still fail as a decision process if the signal and the filters are not used in a fixed order. The critique is about whether the procedure stays testable once the filters can halt it, not about whether any one rule is missing.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
8 of 27 in the Risk-reward ratio track
20041-3 pp.Next on Risk-reward ratioMechanical stops leak intent and misprice lossesA mechanical stop-loss advertises intent and is only a trigger price, so a fill-through can print worse than the bound.
All readings on this track · 27 readings
  1. 1987Precommit the stop and require a surplus payoff
  2. 1987When open losses overwrite precommitted exit rules
  3. 1991Ranking month-end holds with risk-reward and stops
  4. 1994Evaluating percentage profit exits on trend-following averages
  5. 2001Construct reward to risk before entry
  6. 2003A pre-trade readiness checklist for entry, abstention, and risk
  7. 2003Evaluating out-of-the-money strikes with saddle premiums and implied volatility
  8. 2004A critique of one-procedure trading decisions
  9. 2004Mechanical stops leak intent and misprice losses
  10. 2004Implied-volatility premium on rate indexes
  11. 2006Keep the stop that authorized the entry
  12. 2006Bound the loss with a risk-to-reward filter before entry
  13. 2007Audit the operator before abandoning a system
  14. 2007Failed-break slingshot reversal rules
  15. 2007A system-management template that sets the stop and the required reward before entry
  16. 2007Construct a pre-trade style envelope for entries and skips
  17. 2008Systems that skip the three decision gates
  18. 2010Four-gate veto before trend entries
  19. 2012Construct a trading plan as one written procedure
  20. 2012Forex stops and reward targets by quote increment
  21. 2013The average directional index as a lookback cluster and a risk-reward bound
  22. 2014A three-step worksheet for VIX futures tick value and low-vol risk-reward
  23. 2014Binary option premia, fees, and pre-expiry risk-reward
  24. 2015Selling far out-of-the-money commodity option premium as a forgiving timing case
  25. 2016Prepaid option spreads that bound range-day risk and reward
  26. 2016Pre-trade risk-reward versus instinctive exits
  27. 2020Bounding a short-dated option spread with a stop, a gap remainder, and a credit exit
By fieldDecision process416 readingsBy year2004180 readings
All 78 readings tagged Risk-reward ratio
Also on Risk-reward ratio5 readings
1987When open losses overwrite precommitted exit rules2004Mechanical stops leak intent and misprice losses2006Keep the stop that authorized the entry1987Precommit the stop and require a surplus payoff1991Ranking month-end holds with risk-reward and stops