CHAPTER 2
Five Steps in the Risk Management Process
If you ask what the primary objectives are for traders, it would be hard for the answer to be anything other than to generate profits through buying and selling. In fact, that may be the only objective. Reality is clear in that there is ultimately one performance metric, and that is profitable trading. Profitability, or more specifically, consistent profitability, is what separates the professionals from those seeking other work. The risk manager takes more of an internal approach to determine trading objectives. What are the conditions, actions, or behaviors that may prevent me from attaining my profit goals? How do I prevent emotions from hindering my execution accuracy? How do I stay disciplined? This chapter introduces you to the five-step risk management process and how it can be applied to your trading. We will refer to these steps continuously throughout the book to reinforce its purpose and effectiveness.
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