Before trading, it is essential to identify major risks. It is also crucial to understand market dynamics and variables that influence asset prices. Understanding these variables can help you minimize your losses and maximize your profits. For example, a market trend can indicate the market is moving in one direction while it is moving in the opposite direction. You can use stop orders to protect yourself from larger losses. Identifying major risks before trading is crucial to your success.

A portfolio's performance can be compared to a benchmark to identify major risks. An investment's performance is measured by its alpha, or excess return. A negative alpha indicates that the portfolio has underperformed the benchmark. An alpha of 0 indicates that the portfolio is exactly following the benchmark. A positive alpha indicates a portfolio that outperformed it.