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15 July 2015

The Four Faces of Risk: Defining and Managing Risk in Trading System Development and Trading Management

Presenter: Dr. Howard Bandy, USA

About the Presentation
Risk is the primary limitation to trading profits. In the development of trading systems and management of trading, risk appears in four situations:

> Personal risk tolerance. Each trader — person or trading company — has a risk tolerance. It is the amount of drawdown in the trading account where the trader loses confidence in the system and takes it off line.
> Risk inherent in the price series. Each primary data series — the price series of the issue being traded — has risk inherent in it. That risk can be measured and used to determine the suitability of an issue for trading
> Risk of a trading system. The trading system — the model (the combination of indicators, parameters, and rules) together with the data — has both risk and profit potential. Risk of the system can be measured, maximum position size determined, and profit potential estimated.
> Risk management as conditions change. As trading conditions change, risk changes. Risk can be assessed trade-by-trade, enabling the trader to determine the current maximum safe position size, and to compare alternative trading opportunities.

Each of these four aspects of risk is defined, quantified, and discussed.

A question and answer period follows the presentation.

About the Presenter

Dr. Bandy is uniquely qualified in technical analysis, with education including university degrees in mathematics, physics, engineering, and computer science. His graduate work focused on modeling and simulation, artificial intelligence, and statistics. While in graduate school, he began applying quantitative techniques to financial markets in the late 1960s. He continued his academic work, becoming a tenured full professor of mathematics and computer science and university dean. Dr. Bandy has real-world experience as a software developer, including the design and implementation of a program to select stocks and issue buy and sell orders. Additionally, he was a senior research analyst at a Commodity Trading Advisor (CTA) firm, where he held a Series 3 license.

He consults with and assists individual traders and trading companies in the design, testing, validation, and analysis of trading systems.

Dr. Bandy is the author of four recently published and best-selling books on technical analysis, including Quantitative Trading Systems, Mean Reversion Trading Systems, and Modeling Trading System Performance.

You can learn more about his activities, read free chapters of his books, and follow his blog at www.BlueOwlPress.com. Also, the following YouTube presentation gives his background and qualifications: https://www.youtube.com/watch?v=rcjyDeJKskk.

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