ChAPter 26 trader risk Profiling and Position Analysis
L e a r n i n g O b j eCt i v e sUpon completing this chapter, you should be able to:
■ Understand the meaning of risk capacity and its implications
■ Differentiate between aggressive and conservative market participation in terms of
price, time, and risk size
■ Appreciate the effects that leverage has on risk capacity
■ Collect, categorize, and organize technical data according to sentiment and duration
of outlook
■ Reconcile the technical outlook with that of the client’s interests
■ Use technical data to support the client’s objectives
■ Advise clients in accordance with their risk capacity, market expectations, and trading
objectivest
his chapter introduces the concept of risk capacity and how market partici-
pants align their trading and investment objectives in accordance with the
level of risk that they can comfortably tolerate. The definition of risk capacity
in trading is also discussed in terms of price, time, and risk size. The concept of
whether a market participant is risk seeking and aggressive, or risk averse and
conservative, is also covered in detail. Organizing, categorizing, and summariz-
ing technical data is an important prerequisite for preparing the groundwork
for effective and efficient technical analysis. Various charts are used to illustrate
how this can be done methodically. The proper evaluation and application of
signals and triggers is also demonstrated via chart examples of a popular stock
and its relevant index.