Risk v. Volatility
Some feedback just received:
“Greetings, just a thought from another trend follower. I hear the term risk used by investors/traders all the time. They are rightly concerned about risk, yet most do not know the source of risk, and, therefore, how it must be handled. For instance, I spoke with an experienced trader today. One statement really stuck out, “…oil stocks are too risky just like the internet stocks from a few years back…” He then used this reasoning as justification for why he currently won’t trade oil stocks. I tried to explain he was really talking about volatility - not risk. Stocks are not risky, they are volatile. Risk [on the other hand] is a part of one’s trading system. How much capital does one allocate to the oil sector? When does one open a position in the oil sector? When does one close that position? If you know the answer to these questions before your trade, you have already taken steps to reduce your risk. Refusing to trade certain stocks, futures, commodities, indices, options, currencies, etc. will not accomplish this.”
