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Trading Risk: Enhanced Profitability through Risk Control 1st Edition

42 customer reviews
ISBN-13: 000-0534378439
ISBN-10: 0471650919
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Editorial Reviews

From the Inside Flap

It is an age-old maxim–and one that few would challenge–that traders run the risk of crashing by taking on too much risk. But as Kenneth Grant asserts in Trading Risk, money managers and individual traders also suffer by not taking enough targeted risk. Small, profitable trades are fine, but they’ll never harvest the substantial profits investors require to take their portfolios to the next level. What traders need is a reliable system for managing risk–so they can confidently make the big investments they desire and achieve the results they deserve.

Kenneth Grant has managed portfolio risk for several of the world’s most elite, successful hedge funds. Now, he shares his trade secrets, showing how the aggressive trading that is the signature of leading hedge funds can be applied by traders at all levels without excessive risk. Trading Risk offers revolutionary yet practical techniques for real-world traders, not superficial theories or complex quantitative formulas. Grant’s proven scientific strategies are presented in accessible language any trader can understand–and put into practice.

Many professional traders are constrained by firm-wide risk management rules that stifle major growth. Individual traders are often overwhelmed by books presenting quantitative formulas that practically require PhDs to implement. Both kinds of traders too often default to a loose collection of subjective rules of thumb. Grant’s system is a simple yet effective solution–and it strips away much of the subjectivity that makes major deals appear too hazardous for many traders.

Using an extremely simple set of statistical and arithmetic tools, Grant illustrates how to evaluate which portfolio elements are working and which are not. He then shows you how to control your exposure–and prepare for inevitable periods of suboptimal performance without going bust. Grant also helps you interpret the statistical makeup of your portfolio, and discusses how to use these statistics to make decisions consistent with both your financial objectives and your constraints.

Trading Risk demonstrates that traders virtually always have control over their portfolios and that risk can be managed even during the worst market crises–from Enron to the tech bust. With this book in hand, you’ll be able to devise and execute a customized risk management strategy. Whatever type or level of trader you are, Trading Risk offers the key to dynamic investing that doesn’t leave your assets out of control.

From the Back Cover

A revolutionary system for fearless trading without excessive risk

"Trading Risk provides a useful and intuitive roadmap of the risk management process, as written by an individual with unique experience and insight into this topic. It is an engaging read and covers complex subject matter in a straightforward and often-entertaining manner."
– Stanley Shopkorn, Shopkorn Associates

"Ken Grant's eminently readable new book on risk management is a rare blend of theory and practical applications. It is a great starting point for the novice and deep enough for the experienced practitioner."
– Mark R. Graham, Managing Partner, Blue Elite Fund, Ltd.

"This book describes a very practical approach to risk management in a lucid and entertaining manner. Anyone concerned with the topic of risk management ought to find it of interest."
– Susan Estes, Managing Director, Countrywide Securities

"Thoughtful, unique, detailed, actually enjoyable, and comprehensible reading for what is normally a boring and confusing topic."
– Dwight Anderson, President, Osprei Management, LP

"A must-read for risk managers of companies of all sizes who want to preserve capital and take practical advantage of trends in the marketplace. This is a clearly written, funny, and entertaining guide to a very serious topic that affects all corporations. This very complex topic was simplified and made easy to understand by a true expert in the art of risk management."
– Phupinder Gill, Managing Director & President
Chicago Mercantile Exchange

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Product Details

  • Hardcover: 272 pages
  • Publisher: Wiley; 1 edition (September 16, 2004)
  • Language: English
  • ISBN-10: 0471650919
  • ISBN-13: 978-0534378431
  • Product Dimensions: 6.4 x 0.8 x 9.4 inches
  • Shipping Weight: 1 pounds (View shipping rates and policies)
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (42 customer reviews)
  • Amazon Best Sellers Rank: #509,273 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

33 of 37 people found the following review helpful By Brett Steenbarger on October 17, 2004
Format: Hardcover
In his book Trading Risk, Ken Grant draws upon his experience as a risk manager for Tudor Investments and SAC Capital to create an insightful and surprisingly non-technical guide for traders and portfolio managers. As Director of Trader Development at a large proprietary trading house, I have been impressed with the role risk management plays in the success of the firm and its individual traders. Moreover, this is a scalable difference: risk management very much impacts the outcomes of individual trades, results of trading days, and performance across entire quarters. Where I believe Grant has admirably succeeded is in documenting that risk management is much more than simply "cutting your losses". Trading Risk systematically breaks down elements of the process of managing trades, from the establishment of concrete objectives to the allocation of risk capital to specific trades and the use of correlation analysis in evaluating trading results. His discussions of adjusting portfolio exposure and evaluating the risk components of individual trades are highly practical and encourage a rigor of self-analysis that is rarely practiced.

Perhaps an example from my own work with traders that overlaps Grant's ideas might be illustrative. I encourage traders to keep a log of all their trades that tracks time of day, position taken, position size, holding period, and profit/loss (P/L). Changes to the position are also documented, as traders scale into or out of trades. From this record, we can evaluate a host of performance statistics, such as position sizing as a function of market volume/volatility, the correlation of profitability with trade size/holding period, and patterns of activity within the trading day.
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14 of 15 people found the following review helpful By Andrew L. Weinberg on October 14, 2004
Format: Hardcover Verified Purchase
Ken Grant is a world-class risk manager and an entertaining, thought-provoking writer who has successfully intertwined his knowledge of performance-enhancing risk management techniques, human history, rock-and-roll wisdom and an engaging account of his own experiences and anecdotes as head of risk management/ Chief Investment Officer at some of the largest and most consistently profitable hedge funds in the nation.

This book is fascinating, insightful and fairly easy to read, but is also a highly detailed and practical tool for anyone seeking a blueprint for implementing Ken's own dynamic and adaptive risk management processes. Ken offers up valuable insights and methodologies along with case studies gleaned from his long and highly successful career at the epicenter of the hedge fund universe. Ken's wisdom and graceful writing style make it a pleasure to read this book on what can be a difficult and confusing subject. Trading Risk can help develop a discipline that fits your personal trading style and risk tolerance in a manner designed to elicit some control and order to the seemingly chaotic maelstrom of long/short equity trading. Reading and implementing some of the techniques in this book can help make you a better and more consistently profitable trader with lower volatility and less downside risk.

While there are quite a few books on this subject ranging from purely statistical/mathematical treatises to the "for Dummies" types, I found Grant's Trading Risk to be the most accessible for non quant types (like me) who want to be able to combine real-time risk monitoring with historical statistical trend analysis.
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11 of 12 people found the following review helpful By Bestrobots on October 6, 2004
Format: Hardcover
Grant's skillful review of the sometimes complex topics in this field are a revelation. This text should be used by all students in the field, and expereinced practitioners will benefit as well.
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9 of 10 people found the following review helpful By Philip J. Taylor on October 19, 2004
Format: Hardcover
Ken Grant has succeeded in distilling his twenty-plus years of Risk Management experience at some of the world's top financial powerhouses into an excellent and concise book.

Ken is one of the few truly great characters of the investment world. I've been fortunate enough to have had the privilege of working with him and what he says is always worth paying attention to. In my ten years' experience trading for a diverse group of hedge funds, I've met very few who "get it" in the completely thorough way that Ken does.

The reader is treated to a straightforward, practical framework for implementing a risk management system that can be applied to any possible investing style and scale from ten thousand dollars to ten billion. Ken understands and explains that the reason for risk management is not only to reduce risk but also to enhance profitability. He acknowledges that in the real world there are costs to this, limits on the resources available and significant psychological hurdles to overcome. The book incorporates a great deal of everyday wisdom pulled from his extensive experience. In Ken's view: "risk management is much less about estimating and much more about doing".

Rather than focus on the relative merits of complex calculations that attempt to accurately measure the inherently unmeasurable, Ken provides a toolbox full of basic techniques for both measuring and managing risk. He gives sufficient detail to explain the features of the tools and doesn't waste time delving into the intricate details of calculations that are readily available within standard software. As Ken says: "the whole business of determining whether a distribution is normal or not gives me a headache".

His toolbox is extremely well organized.
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