Risk Control

"The markets are the same for everybody
and everybody runs the same risk."

The markets are there for everybody to trade and it's true, they present the same risks and opportunities to all.

The big difference is that a few knowledgeable traders will have set their systems to minimize the risks and make the most of the opportunities. These winning traders make big profits in the markets continuously.

Who are these people and how can they alter the risk?

They are professional system traders. The generally held belief is these traders 'take big risks to make big profits' but that is not the case. On the whole, professional traders are much more cautious than others.

The very first thing they do when they evaluate a system is to attend to the risk aspects. After calculating the limits of risk they are prepared to take, they then focus on finding the risk resonance of the system in question.

When they have this information they are able to assess the likely suitability of the system for them and also explore ways of altering the balance of risk and return that the system demonstrates.

If the system being evaluated appears to be capable of satisfying their
risk/return criteria, it is usually possible for them to improve the return, for example, by taking more risk and still stay within their limits.

Using special techniques, these traders can investigate other strategies that may 'offer a better deal' - and that would not otherwise be available.

At the same time and most important of all, their evaluation process removes the danger of accidental overtrading - an ever present threat to the trader's capital.

So, although the markets are the same for everybody, it is not true to say that all those who put, say $1000 on corn to rise at any moment in time, will be running the same risk. What is more, their potential reward for taking the risk will not be the same either.

Knowing what they do, professional traders always try to angle the odds in their favor.

Newcomers to trading should study the methods employed by the successful professionals before risking their capital in the commodity markets.

 

Modus Trading
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Copyright David Bromley 2006
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