Price shocks and money management

[CRLeBeau@xxxxxxx]

Regardless of whether you trade systematically or use discretion price shocks 
should be avoided.  The issues are capital preservation and risk control.  
These issues override systems and market opinions.

In the long run the outcome of price shocks is random.  It only seems that 
the shocks always go against us.  If we ignored all potential price shocks we 
would have the same result as if we went flat for all potential price shocks. 
 The point is that ignoring the potential shocks increases the risk with no 
benefit and going flat or hedging the potential shocks reduces risk with no 
loss of profit.  The correct choice is obvious.

Systems should not be overridden for directional or timing purposes but they 
should be overridden when it comes to issues of risk control.  The highest or 
worst risk is the risk that cannot be quantified.  These risks should 
definitely be avoided regardless of your trading style.

Assessing many elements of risk is possible on a systematic basis but it can 
never be foolproof.  If the discretionary assessment is that the risk is 
unknown or unacceptable then the system should be overridden.