Maintaining Risks in the Marketplace



Jack Crooks discusses how he handles risk control when trading. Mr. Crooks explains how there's nothing that can fully eliminate risks, keep them from happening, or forecast them with complete accuracy. But individual account risk can be maintained.

On Tuesday, June 3, Ben Bernanke revealed new concern over inflation and spoke directly about the weaker dollar. In the currency markets the dollar jumped. On Thursday, European Central Bank President Trichet signaled interest rate hikes may come as early as July. In the currency markets the euro soared. Yesterday, U.S. Non-farm Payrolls were reported down 49,000 (better-than-expected) for the month of May. But U.S. unemployment leapt by half a percentage point to 5.5% (worse-than-expected). The dollar tumbled and so did stocks. At the same time, crude oil rose by more than $10 a barrel.

In an already tight lending environment, if the Fed leans toward drying up access to money or away from doling it out freely, investors are not going to keep what little leftover cash they have invested in down companies that still may be many months away from recovery. According to Crooks, it's been surprising how well stocks have held up so far.

Risk in the markets today can include inflation fears, the potential time-bomb of derivatives, an overvalued stock market, falling real estate values, and many more. There's nothing that can fully eliminate risks, keep them from happening, or forecast them with complete accuracy. But individual account risk can be maintained.

Some investors can handle more risk than others. The best single phrase about how much investment risk one should take comes from J.P. Morgan, who told a worried friend, "sell down to your sleeping point." In other words, according to Crooks, "If you're lying awake at night, worrying about your investments, you are carrying too much risk."

Crooks uses the simple "screw up your account" mantra for risk control. It forces him to define the level of risk he will take before he enters an investment position while he still has a degree of objectivity left. After entering an investment position, objectivity is replaced with hope.

Crooks looks for a key technical level, some type of chart support area, or basic trend line that will tell him that the dynamics of supply and demand in the market have changed. Or, "If prices reach this level I am wrong because the market has proven me wrong."

At this point he is out of the trade with a loss. He can always reenter the trade if it makes sense, but because he has exited, he somewhat regains a modicum of objectivity to better evaluate price action.

Legendary Wall Street trader Jesse Livermore summed it up best when he talked about reversing our natural impulses in the market:

"When the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out -- too soon. The successful trader has to fight these two deep-seated instincts."

"We must turn hope and fear inside out. We must fear our losses will get bigger and cut them short. And we must hope that our profits get bigger and let them run. In these choppy markets, defining risk beforehand is the best thing you can do," said Crooks.

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About Jack Crooks & Money and Markets

John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.

Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.

Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.

Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





Maintaining Risks in the Marketplace