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

THE FIVE STEPS OF CRISIS MANAGEMENT

Crisis Management The act of preventing or reducing the impact of a catastrophic loss on an organization.

As traders, we need to view our activities of trading within a trading business. Crisis management is the act of preventing and/or reducing the impact of a catastrophic loss to an organization. This includes the planning, preparation, funding, measuring, and of course the button pushing. The loss, as noted in the definition, is threefold for a trader. One is the potential loss of capital or drawdown as a result of trading. Loss of income is also a common possibility as traders. While loss of the business itself is also a risk, it does not necessarily have to come from the first two events. Going forward, be sure not to look at business risk solely as loss of capital which is all too often a common barometer in the “How is your trading going?” response. A trader can temporarily or even permanently be put out of work for a loss of any asset, not just capital. Let us use the following real-life example of an event that resulted in the need for future preparation:

Event: During a severe and dangerous rainstorm, lightning hit a trader's house, blowing out the entire computer system.

Result: The trader had a minor shock to his arm and felt numbness in his upper extremity. He went to the hospital and was cleared with little injury. There were no open trades on at the time, thus no individual trade risk. While the computer monitor and ancillary ...