market basis can be huge in percentageterms, most traders will not adhere to this approach longenough to enjoy the expected benefits. However, the goodnews is that this method can be very useful when appliedacross a portfolio of markets.39
TRADE SECRETS
Calculating Optimal fThe method for calculating optimal f is fairly complex;however, the following example should give you enoughinformation to utilize this method if you so desire. Inorder to calculate optimal f you need a trade listing for agiven market containing at least 30 trades. This approachuses an iterative process to arrive at a value of f between.01 and 1 that maximizes a variable known as theTerminal Wealth Relative (TWR) for a given set of trades.The profit or loss for each individual trade is divided bythe largest losing trade. Then the negative of this ratio ismultiplied by a factor, known as f, and added to 1 to arriveat a return value, referred to as holding-period return(HPR). The formula for one trade is:PR = (-(profit or loss on trade x) / largest losing trade)HPR on trade x = 1 + [f times (PR)]This process is repeated for all trades in the trade listing.The HPR values for all trades are then added together toarrive at another value known as the TRW. The valuefor f between .01 and 1.00 that results in the largest TWRis the f value to be used in the final calculation. In thefinal calculation the largest losing trade is divided by f toarrive at the suggested amount of trading capital. Thisprocess is then repeated for each market in your portfolioto arrive at suggested trading capital amounts for eachbased on optimal f.
Single Market Factor #2: LargestOvernight GapWhen a futures market starts trading on a given day it isvery rare that trading opens exactly at the price at whichit closed the day before. Usually the opening range of40
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
prices is above or below the prior day’s close. This iscommonly referred to as the “opening gap.” Generallyopening gaps are not large. However, every once in awhile something happens between the time the marketcloses one day and opens the next which causes prices togap sharply higher or lower on the opening. It isextremely important to understand the implications of suchevents. If a market gaps sharply lower one day it meansthat every trader who was long as of the close the priorday suffers a big hit immediately upon the start of trading.It is important to be aware that these gaps can occur andof the potential magnitude of these moves. Unfortunately,the common response to such a possibility is “that probablywon’t happen to me.” This is not the proper response.The proper response that the winning trader will consideris “what if this does happen to me?” Asking and answeringthis question allows you to be prepared for just such anevent.Immediately prior to the outset of the Gulf War, thecommon thinking was that if a messy war in the Middle Eastwere to unfold, the price of Crude Oil would skyrocketbased on great uncertainties regarding the supply of oil.On January 16, 1991, Crude Oil, traded on the New YorkMercantile Exchange (NYMEX), closed at $30.29 a barrel.That night the U.S. and its allied forces unleashed a furiousand highly successful air raid on Iraq which immediatelyraised the potential for a quick victory. The next morningthe first trade for Crude Oil took place at $22.79 a barrel.This equates to a gap opening of $7.50 a barrel, or$7,500 a contract. Consider what happened in an instantwhen Crude Oil opened for trading that day. Everyonewho was short Crude Oil at the previous close was instantly$7,500 per contract richer. Everyone who was long CrudeOil at the previous close was instantly $7,500 per contractpoorer.41
TRADE SECRETS
Will Crude Oil ever experience another gap that big?There is no way to predict the answer to this question. Itmay or may not some day experience an even bigger gap.What is important is to realize that if such a movehappened once it can certainly happen again. So you mustprepare yourself for this possibility. If you are long aCrude Oil contract at today’s close and it opens $7.50 abarrel lower tomorrow, how will you react? And moreimportantly, will you survive?Table 2-1 displays the largest overnight gap in dollars for anumber of futures markets. Some markets such as grains andinterest rates have daily limits. For instance, a limit movefor T-Bonds is 3 full points, or $3,000 per contract. So ifT-bonds closed one day at 100, on the next trading day theycould trade as low as 97 and/or as high as 103, but notbeyond these two prices. A daily limit move for Soybeans is$0.30 or $1,500. However, if Soybeans have three limitmoves in a row in the same direction then the limit for thenext day expands to $0.45 or $2,250 per contract. The goodnews regarding markets with daily price limits is that you canonly lose so much money in a single day. The bad news isthat you may be “locked in” to position with no way to exitif that market moves lock limit against you. Also, in the worstcase scenario a limit move one day can beget another limitmove the next day. This can cause losses far in excess ofwhat you might have expected.Other markets have no daily limits. The bad news regardingtrading markets with no limits is that there is no way toknow if and when the previous records shown in Table 2-1might be exceeded. Nor is there any way to predict if youwill be on the right or wrong side of such a move. This iswhy it is important to acknowledge that such a move ispossible, that you could be on the wrong side of that move42
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
and to appreciate the negative effect it could have on yourtrading account.Table 2-1MARKET
British PoundCanadian DollarCattle (Feeder)Cattle (Live)CocoaCoffeeCopperCornCottonCrude OilEurodollarGoldHeating OilHogs (Live)Japanese YenLumberMunicipal BondsNYSE IndexOrange JuicePlatinumPork BelliesS+P 500 IndexSilverSoybean MealSoybean OilSoybeansSugar #11Swiss FrancT-BondsT-Notes 10 YrT-Notes 5 YrU.S. DollarUnleaded GasWheatNatural Gas
LARGEST GAPIN $
$3,988$1,550$678$712$1,510$13,838$2,642$1,475$1,940$7,500$5,525$5,040$8,450$864$5,938$1,776$2,969$11,685$3,088$2,025$2,812$14,928$5,105$1,520$906$2,412$3,898$3,062$3,000$3,000$1,062$2,330$7,694$2,412$3,870
The purpose of carefullyexamining the largest overnight gaps shown in Table2-1 is twofold. The first isto inject a sobering dose ofreality into anyone whothinks that trading futures isgoing to generate easyprofits. The second is to geta handle on just how muchcapital you realistically needin order to trade a givenmarket.
Single MarketFactor #3:Maximum DrawdownOne of the key variables thatmost traders focus on whenconsidering a system to tradea particular market is referredto as the “maximum drawdown.” This value representsthe biggest decline in equityfrom any peak to the subsequent trough. It basicallytells you how bad thingswould have gotten had you
43
TRADE SECRETS
started trading at exactly the worst possible time. Forexample, consider the following scenario: A system tradingthe Japanese Yen accumulates $15,000 in profits. It thenloses $10,000 before gaining another $15,000 in tradingprofits. In analyzing these results, we would say that thenet profit was $20,000 and that the maximum drawdownwas $10,000. In other words, if you had started tradingat the worst possible moment (just after the first $15,000in profits had been made), you would have had to sitthrough—and continue to trade through—a loss of $10,000before getting back into the black. This is a critical pieceof information. If you know there is no way you wouldcontinue to keep trading in the face of a $10,000drawdown, then you should not trade this particular marketusing this particular approach.One important attribute of the maximum drawdown valueis that it is specific to the trading method that you areusing. As a result it provides another useful piece ofinformation in determining how much capital yourealistically need in order to trade a given market usingthe method you have chosen.One word of warning regarding maximum drawdownanalysis: Previous records are made to be broken. Justbecause the trading method above has so far experienceda maximum drawdown of $10,000, this in no way impliesthat it will not experience an even larger drawdown in thefuture. This is especially true if you are analyzing highlyoptimistic hypothetical results. However, because the futureis unknowable we have little choice but to use past resultsas a proxy for the future. In this case we are at least
44
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
making some attempt to acknowledge the worst casescenario experienced to date and to factor that into ourtrading capital requirements.
One Caveat to Analyzing Trading System ResultsIn Section 1 we touched upon the dangers of “overoptimizing” a trading system. If you use enough indicatorsand filters and data and crunch enough parameter valuesyou can arrive at a system that shows phenomenal resultswhen back-tested over historical data, and that has almostno chance of working in the real world. Just because agiven set of indicators and values fit past data well, it doesnot mean that it will fit future data well. Likewise if youare using the results of a highly curve fit, over-optimizedsystem to determine capital requirements the results areeasy to predict—low recommended capital requirements andhuge real-time drawdowns far in excess of what wasexpected.When developing a trading system it is recommended thatyou use part of your database to develop the system andthen test the system over different data that was notincluded in the original development process. This isreferred to as “out-of-sample” testing. While still not thesame as real live trading, testing using out-of-sample datais one way to estimate how your system might performwhen you start to trade it with real money. Also, becausethe trading results are almost always less using out-ofsample data than when using data included in theoptimization process, out-of-sample data is much moreuseful for determining realistic trading capital requirements.
45
TRADE SECRETS
Arriving at a Suggested Dollar Value Per ContractOne simple approach to arriving at a suggested amount ofcapital to have in your trading account in order to tradeone contract of a given market using a particular systematicapproach is to add up the three values just discussed anddivide the sum by 3. The formula is as follows:(Optimal f in $ + Largest Overnight Gap in $ +(Maximum Drawdown in $ + Margin Requirement)) / 3For example, let’s say that you are looking to trade theJapanese Yen with a system you have developed. Theoptimal f value is $3,457, the largest overnight gap for theYen to date has been $5,938, the maximum drawdown intesting using your system was $4,124 and the marginrequirement for one Japanese Yen contract is $3,000.You can then plug these values into the formula to arriveat a suggested amount of capital:($3,457 + $5,938 + ($4,124+$3,000)) / 3 = $5,506For this example, it is suggested that you have at least$5,506 in your trading account in order to trade oneJapanese Yen contract using this system.This method takes into consideration three valuable piecesof information regarding your specific trading method intrading a particular market. Optimal f uses a scientific mathematical process to arrive at the amount of trading capitalthat should theoretically maximize your profitability if futureresults are similar to past results. Including the largest overnight gap for the market in question and the maximum drawdown using your approach to trade this market forces youto take into account previous worst-case scenarios.46
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
If you cannot calculate an optimal f value you may wishto substitute an old standby rule of thumb value which isarrived at by multiplying the initial margin requirement forthat contract times three. One reason for using optimal fis because the value it arrives at takes into account theactual performance of the system you are using. If yoursystem is very good, optimal f will indicate that you cantrade it with less capital than if your system is not as good.Using margin times three results in the same suggestedamount of capital regardless of the performance of thesystem used.Using margin requirement times three is an acceptable ruleof thumb. However, in order to appreciate its limitationconsider two traders who are both presently long T-Bondfutures traders. Trader A uses an excellent systematicapproach that consistently generates profitable annualreturns while Trader B pretty much makes it up as he goesalong. Is the risk the same for both traders? Herein liessomething of a paradox. For any given trade the answeris “yes.” However, in the long run the answer is almostcertainly “no.” By virtue of using a superior approach totrading, Trader A has a greater likelihood of success andshould be able to commit less capital than Trader B.If you do not have any way to back test your system thenthe suggested formula for calculating a reasonable amountof capital to trade one contract of a given market is:((Initial margin * 3) + Largest Overnight Gap in $) / 2For the Japanese Yen the initial margin requirement (at thetime this is written) is $3,000 and the largest overnight gap
47
TRADE SECRETS
has been $5,938. According to this formula the suggestedcapital requirement would be:(($3,000 * 3) + $5,938) / 2 or $7,469These formulas are intended to help you determine theabsolute minimum amount of capital you should have inyour trading account in order to trade your desiredportfolio.
Arriving at an “Aggressive” Suggested Account SizeOnce you have constructed a portfolio of markets and havecalculated the suggested amounts to trade one contract ofeach on a market-by-market basis, it is a simple step toarrive at a suggested amount for the entire portfolio.Simply add up the individual amounts calculated in theprevious step for each contract. Say you plan to trade theJapanese Yen, T-Bonds, Soybeans and Natural Gas and thesuggested capital requirement for each using the formulasjust discussed are $5,506 for the Yen, $5,982 for TBonds, $5,076 for Soybeans and $4,241 for Natural Gas.By adding these values together we find that in order totrade one contract of each market you should have at least$20,805 in your trading account. This should be aconsidered a minimum account size for trading thisportfolio. Adding more money to the account beyond thisamount will reduce your percentage rate of return.However, it will also reduce your drawdowns as apercentage of trading capital and will give you more stayingpower when the inevitable drawdowns occur.
48
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
Arriving at a “Conservative” Suggested Account SizeIf you are able to calculate or at least estimate monthlyreturns from your portfolio it is possible to arrive at whatcan be referred to as a “conservative” account size. Incalculating a “conservative” account size for the portfolioin the previous example, please note that neither theportfolio nor the dollar amount of profit or loss changes.What changes is the amount of capital committed to tradingthat portfolio, the percentage rate of return and thedrawdown as a percentage of account equity. By usingmore capital we can effectively reduce the magnitude of anydrawdowns on a percentage basis to a tolerable level.To use this method it is advisable to have at least 30months of data. When performing mathematical analysisat least 30 elements are required in order to generatestatistically meaningful results. To use this method:• First add up all of the monthly profit/loss figures and divideby the number of months considered in order to calculatethe average monthly dollar profit for the portfolio as awhole.• Calculate the standard deviation of monthly returns (SeeAppendix A for the mathematical formula for calculatingstandard deviation).• Multiply the standard deviation of monthly returns by 3and then divide the result by 0.1.For a given set of data, a one standard deviation moveabove and below the average encompasses 2/3rds of thedata under consideration. A two standard deviation moveabove and below the average includes 96% of the data anda three standard deviation move above and below the49
TRADE SECRETS
average includes 99% of the data. By multiplying thestandard deviation of monthly returns by three we arriveat a dollar figure that encompasses 99% of all previousmonthly gains or losses. By dividing this value by .1, weare attempting to insure that there is a 99% chance thatyou will not experience a monthly loss in excess of 10%.This assumes of course that future results will be similarto past results.Let’s say that the standard deviation of monthly returns forour earlier example portfolio is $1,500. We multiply thisvalue by three to arrive at $4,500 and then divide thisvalue by 0.1 to arrive at a suggested “conservative” accountsize of $45,000. If future results are similar to pastresults, then by trading this account with $45,000 thereis a 99% probability that we will not experience a monthlydrawdown in excess of 10% (or $4,500 in this case).
Arriving at an “Optimum” Suggested Account Size forYour PortfolioTo arrive at what we will refer to as the “optimum”account size for a given portfolio, simply add together the“conservative” account size and the “aggressive” accountsize and divide by two. This is the amount of capital youshould ideally consider having in your account beforetrading that particular portfolio. For the example that wehave been using, the aggressive account size is $20,805 andthe conservative account size is $45,000. To arrive at the“optimum” account size for this portfolio we simply addthese two values together and divide by two. By adding$20,805 to $45,000 and dividing by two we arrive at an“optimum” account size of $32,903.50
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
Digging a Little DeeperAssuming you have all the required data there is someuseful information you can glean by analyzing monthlyreturns. Ideally you will have at least 30 months of realtime and/or hypothetical monthly data to examine. Usingthe formulas below can help you to estimate what you canrealistically expect from your portfolio in terms of risk andreward.A) Expected Annual % Return = Average monthly % returncompounded over 12 months. For our example portfolio,the average monthly return is $729 or 2.2% of $32,903.By compounding this monthly return over 12 months wecan estimate an average annual return of 30.8%.B) Expected maximum drawdown in $ = Standard Deviationof monthly returns x 4. The standard deviation in monthlyreturn for our example portfolio is $1,500, so we shouldbe prepared to sit through a maximum drawdown of$6,000. In other words, any drawdown we experiencewhich is less than $6,000 must be considered “normal”for our account using our chosen approach.C) Expected maximum drawdown in % (Expected maximumdrawdown in $ / Account Equity) - $6,000 / $32,903 =18.2%.D) P/L / Standard Deviation Ratio = Average monthly % return/ standard deviation of monthly returns. For our exampleportfolio P/L = $729 and Standard Deviation = $1,500, sothis ratio is 0.49. Anything above 0.5 is outstanding.E) Expected Profit / Drawdown Ratio = (A / C) – What youare looking for is enough upside to justify the expectedvolatility. The minimum ratio to consider would be 1-to1. For our example portfolio A= 30.8 and C = 18.2, soE = (30.8/18.2) or 1.69. Anything above 1.5 isoutstanding.51
TRADE SECRETS
F) % of Profitable 3-Month Periods – For our exampleportfolio, 79.8% of all 3-month periods have beenprofitable.G) % of Profitable 12-Month Periods – For our exampleportfolio, 98.3% of all 3-month periods have beenprofitable.A high percentage of profitable 3-month and 12-monthperiods is a major plus from a psychological standpoint. Atrader is far more likely to continue trading using a givenapproach if he experiences a high percentage of profitable3- and 12-month periods.
SummaryWhen an account goes into a drawdown, the longer it takesbefore a new equity high is achieved, the greater thelikelihood of a trader “pulling the plug” prematurely. Themost important consideration is to make a realisticassessment of whether or not you will be able to continuetrading in the face of a drawdown, which this analysissuggests, is “normal” for this portfolio. If you are preparedto keep trading through a 20% drawdown, but this analysissuggests that the expected maximum drawdown is 30%,you have a critical piece of information. You need toeither allocate more capital to your trading or make somechanges to your portfolio. The implication here is that youwill probably not enjoy the Expected Annual % Returnbecause it is likely that at some point your maximumdrawdown “pain threshold” will be exceeded and you willstop trading.
52
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
Determining the proper capital requirements for tradinga given portfolio is a difficult and often overlooked task.Many traders put what they think they can afford to loseinto a trading account, pick a few markets that they likeand start trading, with little or no analysis regarding thekind of volatility and drawdowns they might expect toencounter along the way. Unfortunately, the impact offailing to carefully consider capital requirements fortrading a given portfolio can be disastrous. Applying thesteps in this chapter can help you to avoid the mistake ofusing too much leverage.
53
TRADE SECRETS
54
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
MISTAKE #3:Failure toControl RiskWhat is Mistake #3If you were going to engage in some highly risky activityother than futures trading you would likely spend a fairamount of time planning out how to avoid the associatedpitfalls. For instance, if you were going to go sky divingit is probably a safe bet that prior to the jump you wouldcheck and recheck your parachute almost to the point ofobsession. However, as I said earlier, futures trading isunlike any other endeavor. In futures trading it is notuncommon to see people run out the airplane door withouteven looking to see if they have a parachute. These tradersusually fall into the category of new traders who are hopingto make “easy money.” However, even veteran traderswho should know better occasionally fail to keep their guardup. And when they do they pay dearly. Make no mistakeabout the vicious nature of futures markets. If you makea mistake, and leave yourself exposed for one moment, themarkets can reach out and knock you flat. If you don’tbelieve me, ask Victor Neiderhoffer.
55
TRADE SECRETS
Victor Neiderhoffer was a highly successful futures traderfor years (his managed accounts averaged a 31% annualreturn over a 13-year period) and the author of the bestselling book “The Education of A Speculator.” In October1997, the fund run by Mr. Neiderhoffer was short a largequantity of S&P 500 put options (which means he wouldlose money if the market fell). The market had beendeclining and Mr. Neiderhoffer believed the market was dueto bounce back quickly. On October 27, the Dow JonesIndustrial Average fell over 500 points in a single day.Because he still felt he was correct that the market wouldbounce back soon Mr. Neiderhoffer did not cover hisnaked put positions. In one of the greatest ironies infutures trading history, he was in fact correct and themarket started to bounce back the very next day. Thatwas the good news. The bad news was that by the timethat happened his fund was out of business. When thepositions were marked-to-market at the close of trading onOctober 27, 1997, the fund was allegedly some $20 milliondollars in the hole. The fund’s clearing firm closed outall the positions (just before the market turned around) andtheir people contacted Mr. Neiderhoffer’s people to discusshow to make good on the slight $20 million deficit.The moral of the story:risk control in futures trading is NEVER optional.
Why Do Traders Make Mistake #3The sad fact of the matter is that the majority of tradersdon’t get around to addressing money management issuesuntil after they have suffered an unexpectedly large decline56
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
in equity. Part of the reason for this is that when a traderstarts a new trading program his primary focus is the upsidepotential and not the downside risk. Very few people getinto futures trading simply to diversify their investments.And almost no one gets into futures trading hoping togenerate an 8% average annual return. The only reasonto venture into something as risky as futures trading is toearn above average rates of return (You don’t see peoplegetting into Indy race cars to drive to the corner market.The only reason to drive one is to go fast). Unfortunately,because so many traders are focused on the “upsidepotential” there is a dangerous tendency to either ignoreor at least downplay the downside risk. In essence, toomany traders “want to believe” that they will be successfulor they buy into the idea that futures trading can generate“easy money.” These are extremely dangerous notions.In reality, most traders would benefit from “fearing” themarkets more than they presently do. A fear of losing alarge chunk of money quickly is what causes traders tokeep their guard up. A lack of fear is what gets them intotrouble. In almost every other endeavor we are taught to“fight, fight, fight” and that if we persevere and stick toit we will win in the end. In futures trading these notionsare completely wrong. If you start losing a battle in thefutures markets your best bet is usually to turn tail and runfor cover. Unfortunately, because this kind of thinkingruns counter to the way most of us have been taught tothink, many traders focus on “fighting the good fight”rather than on cutting losses.It sounds obvious, but it is important to remind yourselfthat once you lose all of your trading capital that’s it—you57
TRADE SECRETS
are done trading futures. Your very first priority as atrader is to always do whatever you have to do in orderto be able to trade again tomorrow. Anyone who tradeslong enough will score some big winning trades and/orenjoy some sustained winning periods. The trick is to stickaround long enough to experience these trades and tominimize your losses in the meantime so that the bigwinning trades or winning streaks actually put you well intothe black. In the final analysis, proper risk control is thekey determinant in separating the winners from the losersin futures trading.
How To Avoid Mistake #3The only way to avoid Mistake #3 is to plan carefullyregarding the types of risk control needed for the type oftrading that you are going to do and then to employ thesecontrols without exception. Risk control falls into severalcategories. Some are inter-related but each can play acrucial role in ensuring a long trading career. Before goinginto details let’s first define the role of risk control infutures trading.The ultimate goal in trading futures is to make money, themore the better of course. However, the trade-off thatneeds to be considered is the relationship between totalprofitability and the volatility of the performance alongthe way. No matter how profitable a particular tradingapproach may be, if the day-to-day volatility of returns istoo great there is a chance that you may stop trading toosoon, due to either a lack of trading capital or a lack ofemotional wherewithal.
58
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
As an example, consider a hypothetical trading method thatmakes 1000% one year and then loses 80% the next yearand so on and so forth. The good news is that after 5years a $10,000 account would be grow to $532,400—aphenomenal 121% average annual rate of return. That’sthe good news. The bad news is that between years oneand two the account equity would plummet from $110,000to $22,000 and between years three and four the accountequity would fall from $242,000 to $48,400, beforezooming to $532,400 in year five. How many traderswould actually continue to take every trade given a rollercoaster ride such as this? Estimated guess: zero.Many traders start out saying “if I have to sit through a30% drawdown, no problem, because I know my approachwill make a lot of money in the end.” Unfortunately,about 25% into that 30% drawdown about 90% of suchtraders decide they can’t take it any more and they pullthe plug, thereby missing the rebound that would havemade them whole again.The long-term goal of employing any risk control techniqueis to help keep you in the game long enough to reapsubstantial profits. The short-term goals of risk control areto:• Reduce the amount of risk you expose yourself to at anygiven point in time• Minimize the amount of volatility you experience on a dayto-day basis to a level you can live with and keep tradingthroughIf you can sleep with the level of fluctuations in youraccount you are far more likely to stick around for the59
TRADE SECRETS
long haul. At the same time you don’t want to forego alarge portion of your upside potential in the process justto achieve a smooth equity curve.Anything that reduces the magnitude of equity drawdownsgoes a long way towards keeping a trader in the game fortwo reasons. First, it reduces the amount of money lostat any one time, thereby reducing the risk of ruin.Secondly, it can relieve a great deal of emotional pressurefor the individual trader, which in turn makes him far lesslikely to do something drastic in the face of a sharpdrawdown. The costliest mistakes in trading are usuallymade when the pain of losing money (and/or the fear oflosing more money) becomes too great. It is the numberone cause of bailing out when you should be staying in,doubling up when you should be cutting back, tighteningstops arbitrarily (thereby guaranteeing that they will be hit),widening stops arbitrarily (thereby guaranteeing an evenbigger loss on the open trade), etc., etc.There are several risk control methods that can make adifference in your trading. You should very carefullyconsider the potential benefits derived from implementingeach method.
Risk Control Method #1: Diversification AmongDifferent MarketsSection One discussed some of the considerations involvedin deciding whether to specialize in one market or to tradea divers