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

SUMMARY

As you identify your personal and professional risks, allow yourself to step back and assess the risk management program you have put into place. Perhaps there are a few developmental opportunities in the program itself. The system is not designed to be an exact science. How could it be, since we are working in a business that is supported and fueled by random activity and decisions by different participants? In any business activity, the risk management process is designed to focus on the potential exposures that prevent you from being successful. In its design, the assessment phase is designed to kick exposures out that haven't met a level of concern worthy of any additional investment. Those risks that have reached the control stage force action to prevent or at least minimize exposure. Measuring the impact of the controls and monitoring of the entire program round out the risk-based process until new risks are identified and the process starts all over again.

Understanding the dynamics of risk including the acceptance of it allows one to make the decisions using parameters that have little to do with money. It's strange, unimaginable, or at times ridiculous to think that we can apply such nonmonetary theories to a game that is all about money, profits, and wealth accumulation. The surface disconnect is why so many traders trade within a psychological state of scarcity and do not consider how being a risk manager allows for greater success than a typical trader's mind-set. ...