Tag Archives: risk

Forex: What Desire For Risk

The single most significant issue for us to understand once first starting to trade is risk management. Of course we all need to trade to aquire money. So the main thing we need to understand is not to lose it. Of course you will experience losing trades, we all do, it is part of trading, it is inevitable. But learn to survive those losses and subsequently endeavour to minimise and keep on minimising them.

With this in mind I confess to being intrigued by the wildly distinctive approaches proposed by various people. Some will tell you to swing trade so that you can capture whichever significant swings that occur throughout the day. Their argument is that by doing this they will not lose out on any major movements that take place. They benefit from sizeable stop losses to allow the trade a chance to breathe, as they say. This way they can permit the trade run and run for a decent long while and gather in a nice high profit. They do not need to stay chained to a laptop all day long and are comfortable in the knowledge that a large stop loss allows them to trade in this way. And various traders do precisely this.

Let us consider the amount they are risking. Suppose for example the pound is falling against the euro and the chart shows the price bouncing down and up against say the 40 daily moving average. Let us imagine that our stop loss is trailing slightly above the 40dma.There might well be a difference between the price and the stop loss of say 2-400 pips. That is one heck of a lot of risk! You need very deep pockets for this method.

Another method that the risk adverse beginner might want to consider is somewhat different. Imagine the chart described above instead of being a daily chart is a 10-minute chart although we will presume its outline is much the same. Because the price variations are smaller the risk is much smaller. Being a smaller time frame it will need closer monitoring than a swing trade but this is a balance that needs to be struck.

It often amazes me that certain traders will let a trade rise to its summit and subsequently let it retrace in the hope that it will take off again to a higher peak. This it might or might not achieve. When a price reaches its high point it is surely wise to exit the trade at the earliest obvious sign of a reversal and to re-enter later on. By following such an approach the stop loss, instead of being placed on a moving average can be placed at say the low of the preceding bar. As a consequence the risk is reduced to a very low level and fulfils one of the criteria outlined at the start of this article. In order to continue to reduce the risk element you might find you can reduce the stop loss to a portion of the proceeding bar so instead of having a 200 pip stop loss you can perhaps get away with say 20. Now that is low risk.

Emini Trading Embrace the Lifestyle-but it’s not Without Risk

From the onset, let me say that individuals who begin careers in e-mini trading fail at an alarming rate.  This high failure rate is the result of a variety of problems including: poor trading methodology design, poor trader execution, lack of experience, no formal in e-mini trading, the list is a long one.  On the other hand, there are new traders who find a good methodology and execute their trades with precision and enjoy normal success for a new student.  (For the record, I chose my words carefully in the last sentence so as not to reinforce the mistaken idea that e-mini trading is a get-rich-quick proposition)

Trading has afforded me a great viewpoint on life, free from the constraints of tyrannical bosses, incompetent colleagues, and office politics.  Let me say that I have only enjoyed this lifestyle the last 7 or 8 years because my learning came on Wall Street trading operations and all the stress of trading for more money than I could ever repay in my lifetime.  Nearly 25 years in total, and I received a well-rounded education in trading in a variety of trading environments and numerous different trading systems.  There is always the newest and hottest algorithm based trading methods, the new miracle oscillator, the hype never stops. 

But hear is the catch, once you learn to trade the right way, you don’t need all those silly new trading devices.  Once you can effectively read charts and trade consistently for a profit, you can begin a limited foray into trading that may lead you to your own trading business and an enjoyable lifestyle.

But there is a problem here…

Learning to trade is an acquired skill, and some of the lessons do not come easy or on the cheap.  To be an effective trader you must have a high quality trading methodology in place and the experience to execute that system with systematic precision.  No small task, but it can be done.  Add a mentor to the equation and you can greatly increase your learning curve.  You won’t be tearing the market up after a month, but I have watched students that have become self-sufficient in six months, though I would not say that is a typical time frame.  We all learn at different rates and learning to trade isn’t a race.

But once you have, oh, once you have learned to trade…

• Set your hours around a specific trading schedule and enjoy leisurely activities that a normal 9 – 5 job simply doesn’t facilitate.
• Spend time with your family
• Enjoy favorable tax treatment of your earnings.
• Have the peace of mind that your job is not dependent upon someone else’s assessment of your abilities. In trading, you alone are responsible for your earnings.

I truly enjoy the e-mini trading lifestyle, and spend a great deal of effort training others to have the opportunity to do the same.   I don’t think it is prudent to push potential full time traders into a trading career, they will know when it is time to reap the benefits of the hard work they expended learning to trade.

What to do in The Forex to Lessen Risk

Many traders consider forex trading synonymous with aggressive speculation. This is all about the ability of the forex retail trader to trade options on the currency pairs. Using OTC options provides a new level of strategies and tactics.

Many traders are normally buying calls or puts on the underlying spot currency pair. There are limited premiums for this strategy. Exploring the options on spot forex pairs you can get a chance to increase your income. Risks can be lessened in forex trading. Remember these tips in formulating an income strategy for a forex account using options. Set some income goals first. Also, it is best that you have an achievable dollar goal. Keep in mind that an objective of $1,000 per month on a $5,000 account is a different level of risk than setting a goal of $500 per month.

It is best that you always manage your trading and your risks. Making a process will help you lessen your risk. Risk can be avoided with Stop and limit orders. Another risk management tactic you can use is buying and selling spot cash to offset price moves can be applied. In using this strategy, it is mandatory to take measures to control the downside.

Learn how to use technical analysis. A trader who is new to the market should have an understanding how the strike prices relate to overall key indicators, trends, and support and resistance levels. It is best that the trade be an outcome of technical analysis. Another is the understanding of Fibonacci levels, point and figure breakout zones, as well as the valuations on the delta, theta and other key terms related to options trading.

After all the monetary planning you are now ready to scan option pricing tables for puts and calls that can help you achieve those goals. The internet has a lot of 24 hour OTC currency option pricing tables. In looking to generate income using EUR USD options, a trader chose a February 98.50 put and a February 110.05 call where the spot price at the time of the trade was at 104.69.

Even the margin ratio of 80% is high. It is best to use buy stops if you do this trade with a $5,000 account.

Once the February options expire, the cash price of EURUSD will be between 98.50 and 110.05 and this is what you want to get. In currency trading one can choose to use a 400 pip wide trading range.

Change Management Risk Assessment – The Context of Risk Vs Readiness

Change management risk assessment is complex and multi-dimensional and thus transcends what is traditionally understood by the concept of “risk assessment”. Risk assessment of a change management initiative is based on the premise that “organisational risk” is the inverse of “change readiness”.

In other words, the more ready the organisation is to change, the lower the risk of failure of the change initiative. So if we can establish some useful means for defining and calibrating change readiness then we can take steps to mitigate the likely causes of failure.

An appropriately selected change readiness assessment tool not only informs an initial change management risk assessment, but it also forms a baseline and be can re-administered to measure progress in change readiness – and thus reduction in change management risk – over time.

For a project management based change initiative, these assessments will help to reduce project risk.

The results of these assessments will shape key areas of the change management strategy and plan – specifically the communication strategy.

However, many companies – particularly in North America – do not stop and evaluate lessons leaned from past change initiatives before launching the next one. In recent interviews a key piece of advice that John Kotter offers is for organisational leaders to take the time to get themselves informed about what does and doesn’t work – before launching into action with a change initiative. As he says: “If you get that knowledge upfront, it can save you great grief and money later on.”

But before getting into the mechanics of tools that can be used to undertake a change readiness assessment we need to be understand the context of change management risk assessment and appreciate the significance of a number of inter-related factors:

(1) The marginal rate of change is increasing – and continues to do so

We used to believe that change occurs in cycles and waves that ebb and flow. This may be accurate over long time spans of hundreds of years, but in the present the rate of change is continually increasing and this has a significant impact on any change management risk assessment.

Based on his latest researches, Kotter says: “Many organisations just can’t keep up with the speed of change.”

This is profoundly important because it is closely linked to another major and frequently overlooked factor…

(2) The emergence of the flat world and horizontal management

I was tempted to headline this point the “death of command and control” – but that is not strictly true as there will always be situations where there is a need for firm direction and senior management edicts for compliance with the legal requirements related to the management and governance of organisations, and also in crisis situations.

However, in the “horizontal world” we now live in, information is available to all and the current and emergent technology infrastructure coupled with the proliferation of social media channels and tools allows for almost immediate dissemination and comment of gossip, opinion and factual information.

The days when decisions affecting many were taken by a few and then imposed on the many are dying – if for no other reason than people want and expect to be involved and they resist change that is imposed upon them. This is self-evident in the failure of 70% of significant change initiatives.

One of the keys to change management risk assessment lies in understanding the extent to which the change leadership are engaging directly with the “informal organisation” – sometimes referred to as the “shadow organisation” – from the outset – from the planning stage right through to implementation and beyond.

(3) Recognition of the importance of the emotional dimension of leadership

Many thought leaders in the world of change management and change leadership are now speaking vociferously about the importance of the emotional dimension of leadership and the need to address the human dimension of change.

These people include Daniel Goleman with his focus on primal leadership; John Kotter emphasises the need to motivate people by speaking to their feelings; Jon Katzenbach highlights the value of personalising the workplace; Andy Pearson emphasises how people will respond to their leaders efforts to connect with their emotional side; and of course William Bridges’ says that “A change can work only if the people affected by it can get through the transition it causes successfully.”

(4) The importance of the informal networks

Jon Katzenbach and Zia Khan, Authors of “Leading outside the Lines” make the important point that organisational leaders struggle to recognise the importance of the informal networks within their organisation, and the need to engage with them and mobilize them as a key method of accelerating the efforts of the formal (management) elements of the organisation.

Neil Farmer – a leading UK change expert and the leader of 5 major and successful UK corporate change initiatives – points out that whilst the formal organisation determines all routine aspects of what takes place, and in so doing provides the necessary “glue” of stability and repeatability, the shadow or informal organisation largely determines the scope and pace of change and is thus a major factor in change management risk assessment. He says that where the informal and formal organisations come into conflict, the informal nearly always are the most powerful.

(5) The answers are (almost) always at the frontline

With the exception of technical, financial and legal issues, the answers to issues relating to successful change planning, change impacts, change implementations and most importantly benefit realisation are to be found at the frontline.

In my own work I have found time and time again that the answers to the most challenging business issues, project and programme failures and performance problems always – without exception lies with the front line staff – those directly involved in “doing it”.

Also, the creative solutions to issues identified via change management risk assessment are to be found there as well.

All it takes, in my experience is the time, courtesy and empathic listening to the people at the “coal face” to find out what the issues and impacts are and also to discover what the solutions are.

(6) Stuck in Jurassic Park

The first and biggest step to making all this happen is one that can only be taken by the CEO and senior management of the organisation, and that is to relinquish (or at least relax) “command and control” sufficiently to empower the change leaders to identify and work in collaboration with the informal networks.

In my direct and observed experience, this still seldom happens. The dinosaurs still stalk the corridors of corporate power. The DNA of the leaders and senior management of most organisations (especially large ones) seems to be hard-coded to resist this – thus resistance to truly effective change management risk assessment starts at the top.

Here in the UK at least, this resistance to change in management style reflects the myopia that results from a general business culture fixated on short-term results.

All too often, the only conditions that encourage directors to relax command and control are either the appointment of a new CEO and/or senior management team, or the threat of a fairly major exposure i.e. an issue that is severe enough to create a personal accountability and potentially one that could be politically exploited to the personal detriment of the individual executive.

However, as Kotter’s observed rate of change gathers momentum these people will be exposed to ever increasing exposures and will either adapt or follow the fate of their Jurassic predecessors…

So the common thread running through all of these factors is the people dimension and the paramount need for change leaders to base their change readiness assessments around a detailed, direct and early engagement with the informal aspects of their organisation.

Potentially Lower Portfolio Risk with a Managed Forex Account

A managed Forex account works in much the same way as a traditional mutual fund; an outside trader (CTA) is managing the accounts transactions on behalf of the account owners. The Forex trader (CTA) watches the market and attempts to create profitable trading opportunities for the individuals.

The Forex market include countries from around the world therefore, it is important to understand the regulations and laws regarding Forex trading and what companies are permitted to work with the public dealing with managed Forex accounts. This is another benefit of a managed Forex account verses going it alone as a CTA is responsible for understanding the Forex industry regulations and staying in compliance with them.

Even though using a managed Forex account can be beneficial, it can also be very risky. It is your responsibility to research and select the best investment organization or other experienced individual CTA to manage your account. Past history, rate of average loss and general reputation of the amount of profit yielded are all factors that should be taken into consideration when doing your research.

As with most things, there is a cost associated with a managed account. The cost or payment structure for a managed Forex account will vary based upon the CTA. Most managed Forex accounts are set up to keep a portion of the profits that are made from trading. This type of an arrangement usually works best for new investors. With this payment arrangement, the CTA does not make any money unless he is successful in the market. The percentage of the profit kept can be large. In some cases, the CTA will keep upwards of 30 percent of the profit.

Managed Forex accounts are for those who don’t have the time to devote to the markets rapid pace. It’s also for those who don’t have the expertise to deal in the foreign exchange market. Professional CTAs and investment firms are there to help manage your account. Leverage their experience and potentially lower your overall portfolio risk and enhance your overall portfolio returns.