Effectively managing risk is fundamental to our investment management process.
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We believe if risk management procedures are in place and the guidelines of our disciplined investment process are followed, returns will be generated over time. Because the markets we trade are dynamic, we constantly seek to enhance our risk-control measures, without changing our basic approach to investing. This requires that we review each prospective market - and periodically reexamine markets currently traded - for their suitability for trading under our system.
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Managing Risk Throughout the Investment Process.
We attempt to control risk in all aspects of the investment process--from the confirmation of a risk/return opportunity, to determining the optimal exposure in a given market, to money management issues such as the startup or upgrade of client accounts. We double check the accuracy of our market data, and will not trade a market without multiple price sources for analytical input, in an effort to minimize business risk. Moreover, the firm's computer systems were developed to include redundant features. In constructing a portfolio, we seek to control overall risk as well as the risk of any one position, and we look for markets that have positive performance characteristics. Most programs participate in more than one market sector at a time. Programs trading only one or two sectors may participate in broadly diversified geographic markets or may take small position sizes in seeking to reduce risk. Trading discipline requires plans for the exit of a market as well as for entry. As a matter of course, we factor the point of exit into the decision to enter (stop loss). The size of our position in a particular market is not a matter of how large a return can be generated but of how much risk we are willing to take relative to that return. To some, this might seem like constructing a portfolio backwards; but to us, it is simply a matter of prudent investing. By building programs from a risk-control perspective, we believe capital can be preserved for profitable periods.
Risk and Opportunity.
Without investment risk, there would be limited return opportunities. Our investment strategies seek to exploit the opportunities associated with the changing distribution of prices, in an attempt to provide positive returns for our clients. We do this by participating in those markets evaluated as having the highest probability of continued positive returns. At the same time we attempt to minimize downside risk or the probability of negative returns, although this may not always be possible.
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