78 RISK SERIES
THE OPPOSITE WAY TO VIEW TRADING
Traders traditionally enter into trading focused on
the potential profit that they can earn.
However, we can’t control the profit as that is lef
t to the market; what we can control are
the risks associated with trading. Over the next se
veral weeks we will drill down to
discuss the long list of nuances associated with ri
sk. This series will not be a broad
discussion. We believe it is too theoretical to def
ine risk simply as “Risk...” To be
workable for a trader we need to define risk in a p
ractical way as it affects our trading
across various situations. For this summary article
we will outline specific risk under
multiple contextual situations.
Once you begin to internalize the factors that comp
rise the risk spectrum, we think that
your biggest surprise will be how trading opportuni
ties begin to become much more
evident; trades will start to pop out at you. An ad
ditional benefit will be the lowering of
the psychological pressure you feel while engaging
the market. As we discuss risk
through specific trading scenarios you will more de
eply appreciate the power of the
philosophy,
“You can manage risk; however, you can’t manage ret
urn”.
The effects of
developing this belief are far reaching.
This is a very unique approach; let’s concentrate o
n what we can control. The following
is the initial list we will be working from; just c
ontemplating and creating the list was
mind expanding. We have listed the installment dist
ributed last Wednesday, April 3
rd
next to item #1. Today’s installment discussing the
bonds is listed under #17.
1. Risk of staying in a trade too long
—formerly article
‘
78A Risk - S&Ps 4-4-
2013’ distributed April 3, 2013. Now named article
78-1 S&Ps 4-4-2013
2. Risk of looking too short-term
3. Risk of not staying long enough
4. Risk of executing an impulse trade
5. Risk of poor trade location
6. Risk of trading what you want or need
7. Risk of not recognizing the importance of a poor
high or low
8. Risk of fading a trend day
9. Risk of overtrading
10. Risk of losing perspective—too short-term—the b
igger picture is called the
bigger picture for a reason
