September 2002
The current landscape of corporate America has become an embarrassment. What was once viewed as a great symbol of capitalism has turned into a thing dominated by greed and corruption. This, not surprisingly, has led investors to lose trust in the system. Investor confidence has dropped, the value of the US dollar continues to diminish, and the Dow Jones Industrial Average has suffered steady declines, hitting levels not seen in years. None of these factors help the long-term investor, as is made evident by the quantity of assets currently flowing out of mutual funds. There's no doubt it hurts, especially since the slide of the last two years is probably both the steepest and the longest in duration that many investors have seen.
What's the best lesson to be learned from this bear market? You guessed it -- the need for risk control. As a trader, you have the opportunity to apply money management methods to prevent your assets from being depleted too greatly. As you will learn from the STOCKS & COMMODITIES interview in this issue with David Stendahl (page 76), the most effective way to implement risk control is through position sizing. His focus is on creating intelligent systems that can make adjustments to position size as the dynamics of the markets change.
Not everyone has the means to apply the systems Stendahl uses, but there are simple techniques that can generate consistent returns, like the one discussed by Bo Yoder in his article, "Position Sizing for Optimal Results," on page 52. Most important, don't let the smell of success tempt you to exceed your limitations. We all want to be super traders, but is that a realistic expectation? "Better Trading With Risk Control" by Daryl Guppy, which starts on page 22, will show you how to identify both the type of trader you are and the type you should aim to become.
Thus, the control is in your hands. To make sure you're immune to the current negativity pervading Wall Street, focus on your assets and realize that when it comes to managing them, there's no better person to trust than yourself.
Jayanthi Gopalakrishnan,
Editor
Originally published in the September 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.