Quoting fijitraderDislikedThe key word is "imply". Volitility itself does not imply risk any more than when I stand on the shore and watch 10 meter waves come in or when I stand on the shore and watch 1 meter waves come in. Either way I don't experience increased risk unless I get too close to the action.
However when we define what our relationship is with the volitility then we can create situations where risk increases and decreases relative to our trading parameters.
...
There are so many ways to look at risk but the real answer is that risk is always relative to other objectives and does not exist on its own. Increased volatility implies no risk to someone who is not in the market. [emphasis added by Redleg]
FTIgnored
This is an excellent point. The first step to meaningfully comparing the risk between two systems is to define your objectives - what you are trying to accomplish. Risk only exists within a context.
Good food for thought on slippage - I don't tend to worry about slippage that much ... perhaps because I've only traded forex. But I can see where slippage could pose a significant risk.
Quoting fijitraderDislikedIncreased volatility implies an increased probability of a stop being hit but it also implies an increased probability of a target being hit. Therefore your risk and reward both increase with an increase in volatility so the question about whether risk increases would be more complex and not related so much to volatilty itself. All things being equal risk does not increase in that situation if volatility and liquidity remain in proportion and do not threaten your chances of exiting according to your risk parameters. Risk does not increase with volatilty if you can be sure your exit is going to happen where you define it.Ignored
Thanks!
James