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Designing Stock Market Trading Systems: With and without soft computing by Tobias Hahn, Bruce Vanstone

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Chapter 9 – Risk

“Take calculated risks. That is quite different from being rash.”

General George S. Patton

9.1 Introduction

In the context of stock market investment, the issue of risk has many facets, as an investor may be potentially exposed to a great number of risks. Many of these risks may indeed be unquantifiable, due to the very nature of the investments being undertaken.

Stock investment may be subject to risks such as:

  • liquidity risk
  • market risk
  • sector specific risk
  • many, many others

For this reason, many traders use simple techniques to try and reduce their risk exposure – for example, a trader may decide only to trade amongst highly liquid stocks to attempt to reduce liquidity risk.

In reality, the concept of ...

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