365QOD- Day1234

Reducing vs. Eliminating Risk

“Pitiful is the person who is afraid of taking risks. Perhaps this person will never be disappointed or disillusioned; perhaps she won’t suffer the way people do when they have a dream to follow. But when that person looks back – and at some point everyone looks back – she will hear her heart saying, “What have you done with the miracles that God planted in your days? What have you done with the talents God bestowed on you? You buried yourself in a cave because you were fearful of losing those talents. So this is your heritage; the certainty that you wasted your life”- Paulo Coelho, By The River Piedra I sat Down and Wept

According to James Altucher:

Lesson#4 Taking risks versus reducing risk

Maybe no pain no gain really should be reworded as “No risk, No Reward”?  Everyone has heard the old saying of no pain no gain.  The closest quote I can find to no risk, no reward came from Niccolo Machiavelli, “Never was anything great achieved without danger.”

But this statement misses the twist that James puts on it.  The idea is not necessarily to eliminate the risk but to reduce it.  James even offers an example of driving without a license on you.  Once you realize that you do not have the license with you you would drive carefully and obey the rules of the road more closely.  By doing this you are still risking getting a ticket for driving without a license BUT you are reducing the likelihood of it happening in the first place.

How do we apply it to day trading?  For day trading, this mean that each day at the beginning we must reset our stops.  Don’t assume that stops you placed one day are good until you decide to sell.  The investment could have gapped down overnight and your stop is worthless.  You are betting on it protecting you but the net is gone.  So reduce the risk by setting a new stop. 

Today’s question is:

“Do you reduce or eliminate risk in your life?”