Technical investing and risk management

I must admit a certain innocence in the use of technical investing. A close friend and respectable investor continuosly highlights its usefulness in investing. For example, this individual would buy into a stock weighting the size of the investments on the volatility of the stock. More volatility, lower initial position. I find this approach incomplete. For example, why not size positions comparing volatility of the stock price on volatility of cash flows. If cash flows are volatile and the stock price is volatile this merits a smaller initial position than a company whose cash flows are quite stable historically, and we believe they should not become considerably more volatile in the future. This way we connect market prices to company value generation. His second rule is he would buy once, buy twice, three out. Another rule is setting a limit on how much lose you would take. This seems sensible and I try to ensure no single position can suffer a more than 1% loss on the portfolio in my worst case scenario (which of course can be wrong - and has been in the single case of Tesco so far). Indeed, this viewpoint is what finally deceides the position size of a stock. However we must be careful. A long term investment philsophy based on understanding a business should not apply a trading risk management strategy - each process is built for a different strategy and combining them is likely to not be an optimal manner to manage assets.