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>Q. Is position sizing the primary way to define risk?
>A. Yes. Without the stop loss order you have no effective way to manage risk EXCEPT to keep positions very small. Anything can happen at any time. If you hold this belief you must and will define (and thereby limit) risk.
I found stop loss sometimes counter productive. Time stop plus small positions may be better for some systems. For example, if a 10-day n-bar stop is set, and average adverse excursion at the end of the 10-day period is 8% (based on backtest results), and 10% equity position size would have risk: 10%*8% = 0.8% equity. Just something to think about.
- Mark H.
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