Risk management is not just setting stops. A risk management review of your business should involve identification of all risk and establishment of controls or treatments to ensure you appropriately manage that risk. Risk treatments are usually classified into three categories:
- Avoid the risk,
- Transfer the risk to another party, or
- Reduce the risk.
One trading risk that needs to be addressed is identifying the trading environment which proves most challenging to you personally. Which environment is most damaging to your financial bottom-line?
Where do you struggle the most – strong trending markets, slow but wide ranging trends, narrow range-bound markets, wide ranging sideways markets, or any other classification of market environment?
Journaling and reviewing your trading results will help you identify your areas of weak performance, and allow you to then address the risk.
Let’s look at an example…
I struggle the most in trending environments that just persist all session long, such as shown in the chart below.
