Skip to main content

The Risk of Trading: Mastering the Most Important Element in Financial Speculation



The Risk of Trading: Mastering the Most Important Element in Financial Speculation

Michael Toma

ISBN: 978-1-118-23710-6 March 2012 224 Pages


Develop the skills to manage risk in the high-stakes world of financial speculation

The Risk of Trading is a practical resource that takes an in-depth look at one of the most challenging factors of trading—risk management. The book puts a magnifying glass on the issue of risk, something that every trader needs to understand in order to be successful.

Most traders look at risk in terms of a "stop-loss" that enables them to exit a losing trade quickly. In The Risk of Trading, Michael Toma explains that risk is ever-present in every aspect of trading and advocates that traders adopt a more comprehensive view of risk that encompasses the strategic trading plan, account size, drawdowns, maximum possible losses, psychological capital, and crisis management.

  • Shows how to conduct a detailed statistical analysis of an individual's trading methodology through back-testing and real-time results so as to identify when the methodology may be breaking down in actual trading
  • Reveals why traders should think of themselves as project managers who are strategically managing risk
  • The book is based on the author's unique 'focus on the risk' approach to trading using data-driven risk statistical analytics

Using this book as a guide, traders can operate more as business managers and learn how to avoid market-busting losses while achieving consistently good results.

Preface vii

Acknowledgments xiii

About the Author xv

PART I Principles of Risk Management 1

CHAPTER 1 Foundations of Risk Management 3

CHAPTER 2 Five Steps in the Risk Management Process 11

PART II Managing and Measuring Risk 61

CHAPTER 3 Predictive Analytics Using Quantitative Analysis 63

CHAPTER 4 Statistical Edge and Its Impact on Risk 71

CHAPTER 5 Embracing a Culture of Analytics 113

PART III Qualitative Elements of Risk 145

CHAPTER 6 The Human Element: Psychological Risks of Trading 147

CHAPTER 7 Preparing for Risk and Loss 161

CHAPTER 8 Business Risk Management for Traders 181

Bibliography 201

Index 203

"The Risk of Trading is a call to arms for the trader who either keeps no trading journal at all or simply records profit and loss. Metrics are critical to success." (Seeking Alpha, May 2012)