The Risk of Trading: Mastering the Most Important Element in Financial Speculation

STEP FIVE: MONITORING YOUR RISK PROGRAM

At first the risk management process components discussed so far may seem overwhelming and confusing. You may be saying, “On top of all this, I have to trade too!” Like trying anything new, this process can be intimidating for some initially. Once the improvement in results and consistency starts to make its way into your P&L statements, motivation to continue using a risk-based approach is greatly enhanced. Identifying, assessing, controlling, and measuring risk are only beneficial, however, if the steps are done on a continuous basis. Risk management is a process and not a task. Some parts of your trading will be in the control phase while other risks will be newly identified and require starting from step one. It is this continuous flow of the five-step process and more importantly, the management of such that constitutes the risk management program. A common question I receive is, “I'm just an individual trader. Can I do this all by myself?” Individual traders certainly can do so, and in many cases, working directly with your own trading data forces you to take greater responsibility for your trading decisions. Individual traders commonly are their own boss and require the tools necessary to succeed in this challenging field. Individuals may not have the manpower or resources to rely on others to guide them toward growth. Coaches or mentors can add great value throughout the risk management process. Simply put, a second set of eyes that ...