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Strategies and Tactics

Portfolio Management and Risk Management Strategies & Tactics

The purpose of this section is to assist in the development and implementation of suitable Strategies & Tactics within the Portfolio Management and Risk Management Process.


The purpose of this section is to assist in the development and implementation of suitable Strategies & Tactics within the Portfolio Management and Risk Management Process. As discussed in the White Paper, Risk Management Programs & The Use Of Derivatives, an important key to staying focused on ensuring the suitability of all Strategies & Tactics to portfolio and risk management objectives is to clearly understand the underlying portfolio and related risk position, and then develop and implement Strategies & Tactics within the opportunities provided by current market conditions. This Strategies & Tactics development and implementation effort is facilitated by developing a practical Market Analysis through systematically applying the Analytic Framework to the critical industries, entities, markets and instruments involved in creating and intermediating commerce in the main Global Economic Drivers.


The following Outline of Issues To Be Developed is and will be applied to the following markets that relate to the critical industries, entities, markets and instruments involved in creating and intermediating commerce in the main Global Economic Drivers:

Interest Rates
  • Eurodollar
  • U.S. T-Bills
  • U.S. T-Notes
  • U.S. T-Bonds



  • Japanese Yen
  • Deutsche Mark
  • Canadian Dollar
  • Swiss Franc
  • Australian Dollar



  • Gold
  • Silver
  • Copper


  • Cotton
  • Wheat
  • Corn
  • Soybean
Ouline of Issues to be Developed

There are two basic premises underlying the need to systematically develop suitable strategies and tactics before the stress of the risk exposure and/or market conditions create the demand:

  1. It is too late to develop suitable strategies and tactics in the midst of adversity - stress has already caused the brain's synapse to start to malfunction.
  2. There is no amount of anxious and wishful thinking that can alter or control the course of a given market. However, the energy levels typically dissipated by anxious and wishful thinking, when constructively applied to developing suitable strategies and tactics, beforehand, can introduce enough flexibility to enable profitable adaptation to unforeseen events that are beyond our individual control.

The following outline represents the main issues that will be developed over the coming weeks:

Risk Analysis

  • Where am I at risk?
    • Create "as is" performance profile.
      • Direction
      • Duration
    • Study VAR and other risk measurement related issues.
  • What are the probabilities of the risk occurring?
  • What are the consequences of the risk occurring, regardless of probabilities?
  • What are my objectives regarding changes to the "as is" performance profile?
  • What are my alternative methods for managing the risk?

Decision Making Context

  • What is the context (swing level) within which I tend to implement/trade portfolio management and risk management decisions?
    • Cycle
    • Major
    • Intermediate
    • Minor
    • Minute
  • What is the preferred implementation/trading style
    • Discrete
    • Continuous

Risk Control

  • Capital and risk allocation by well defined individual sub-portfolios or individual positions
  • Capital requirements to finance each portfolio or position
    • Percent and dollar amount of capital that has been allocated that you are willing to place at risk (Capital at risk)
    • Market volatility (function of the swing context within which position will be traded) in direction position will be at risk
    • Divide the dollar effect of volatility, per position unit, into Capital at risk to determine maximum number of position units
    • Total capital to finance position will be lesser of the amount required to finance position units resulting from above calculation or total capital previously allocated for individual sub-portfolio or position

Trading Policy

  • Determine underlying bias
  • Trade outright positions consistent with bias
  • If trade against bias, trade spreads and/or buy options only - do not establish outright position against bias within which normally trade.
  • Conditions acceptable for trading against underlying bias:
    • In window for SP for lesser swing levels
    • Either an extreme momentum reading, or divergence
    • High volume reversal day
    • Tradable correction opportunity


  • Markets to employ/trade
  • Tradable dimensions
    • Absolute price, interest rate, or exchange rate
    • Basis
    • Volatility
    • Time
  • Determining underlying bias - different at various perspective levels
  • Conditions accompanying change in direction (underlying bias or sub-swings) -- Swing Point Window:
    • Timing
      • Price, interest rate, or exchange rate level
      • Speed (velocity)
      • Momentum - how intense is the move?
        • Level
        • Divergence
        • Confirmation
    • Commitment of Traders
    • Fundamental information
    • Balance fundamental, technical, and psychological
    • Risk Management
  • Swing Model
    • Purpose
    • Major tenets:
      • No one knows the future
      • Nothing is new
      • Historical information is available for study, analysis, and classification
      • Human imperfections lead to less than 100% confidence
      • Accept the fact that, as humans, we fail more often times than we succeed.
      • In most market situations, for each swing level, we will be wrong on at least one of five issues:
        • Direction
        • Timing (When)
        • Magnitude (How much)
        • Duration (How long)
        • Speed (Magnitude/Duration)
      • However, it is our efforts to limit the consequences of our failures and, equally important, our efforts to recover from our failures that produce the seeds to our successes
      • Need to maintain on-going suitability, by definition, necessitates periodic upgrades in analysis and classification methodologies and changes in strategies and tactics
    • Ability to analyze and classify historic information is limited by:
      • Availability of information
      • Current understanding of appropriate analytic and classification methodologies
      • Perhaps most important, our willingness to commit to a dynamic on-going effort to improve our analytic and classification abilities
    • As fundamental and important as historic information analysis and classification is, disciplined application of the results to the development and implementation of strategies and tactics is even more important. Our commitment in this regard is to:
      • Objectively present our analysis and classification of historical information
      • Disciplined application of the analytic framework in developing a probabilistic view of the future
      • Develop strategies and tactics that are suitable to portfolio objectives and market conditions
      • Principled flexibility in implementing
      • Upgrades to analytic and classification methodologies
      • Changes to strategies and tactics to maintain suitability to portfolio objectives and current market conditions.
    • For additional comments related to the foregoing, go back to the HomePage for listing.

Strategies & Tactics Matrix

Matrix organized by the four basic phases and characteristics of price, interest rate, or exchange rate cycle on the horizontal axis; and, portfolio management and risk management exposure analysis characteristics on the vertical axis. Each Strategies & Tactics cell hot-linked to a written description of the strategy or tactic accompanied by performance profile charts. Additional elements to include:

  • Degree of aggressiveness (from most aggressive to least aggressive).
  • Four trading dimensions:
    1. Price, interest rates, exchange rates.
    2. Volatility
    3. Time
    4. Combination
  • OTC vs exchange traded means of executing each individual piece of the strategy or tactical adjustment. Key considerations include transaction costs, liquidity, and for options, the purchase or sale premium.
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