Is it possible to reduce risk to zero?

Quote from Cheese:

Your question suggests you are not suited to trading.

Nevertheless, I can give you an answer near to what you want affirmed. It won't be the experience of the many but you can get risk down to a level which proves to be zero. In fact it can't be zero; it is only that by using a low bet or stake size pro rata to your capital employed for trading and by deploying an accurate methodology which utilizes the offering of the whole market day (eg YM), you allow yourself to keep building your total capital without interruption.
:)
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Actually... the correct ** real life answer ** is YES.

Assuming you are profitable at an acceptable level... then your only risk is the risk of ruin.

volatility = annualized standard deviation

** Note: this analysis is APPROXIMATE **...
Typical volatility of Dow Jones Industrials: 0.10 to 0.20
Typical volatility of US 10 Year Note: 0.04 to 0.08

One can construct a well hedged portfolio (I have one)...
With volatility at low end of US 10 year note range... let's say 0.05
That generates returns more than double that of the stock market.

Such a hedge fund would have a Sharpe Ratio in the 3.0 to 4.0 range.

Now where is the risk?
Ruin is roughly 20 standard deviations away...
An event less likely than being struck by lightening.

For such a hedge fund market risk ceases to be relevant...
Only external risks such as financial system stability, regulatory issues, fraud, nuclear war, revolution, plague...
Are small, but real, risks.
 
Quote from gnome:

1. It is NOT possible to reduce the risk to zero, even for the smartest MOFO on the planet.

2. "...Extremely small profits" are a bane to market success... you must strive for bigger wins.
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Sage advice indeed,
 
Quote from Norm:

Hello,

Is it possible to reduce risk to zero or nearly zero by using an entry strategy that is favorable to obtaining some profit (every an extremely small profit) and then placing a stop loss at or near the entry point?

Norm
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the problem with your question is that you are assuming that:

1. after you get into the trade the price will move in your favor
2. even if it does, that you will get a good fill on your stop-loss

so my answer to your question is NO based on your assumptions.
 
Quote from Norm:

Hello,

Is it possible to reduce risk to zero or nearly zero by using an entry strategy that is favorable to obtaining some profit (every an extremely small profit) and then placing a stop loss at or near the entry point?

Norm
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If you wish to have near 0 risk in every trade, arbitrage may be the answer. However I wonder if a retail or individual trader can compete with the institutional arbitragers.

But if you don't look for a win in every trade but take a bunch of trades as 1 win/loss, the risk can be very small like near 0, so to speak, if you have very sound strategies and money management.

Yes, you may have drawdown, but gains will eventually come up and eat up all your small losses, leaving handsome profits.

And then you manage to find a good trading edge to defeat the market, winning can be a near sure thing to you. You may also say you've found a "near 0 risk" trading in this regard.
 
Quote from Trader_Herry:

If you wish to have near 0 risk in every trade, arbitrage may be the answer. However I wonder if a retail or individual trader can compete with the institutional arbitragers.

But if you don't look for a win in every trade but take a bunch of trades as 1 win/loss, the risk can be very small like near 0, so to speak, if you have very sound strategies and money management.

Yes, you may have drawdown, but gains will eventually come up and eat up all your small losses, leaving handsome profits.

And then you manage to find a good trading edge to defeat the market, winning can be a near sure thing to you. You may also say you've found a "near 0 risk" trading in this regard.
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I dont think arbitrage is 0 risk. They call it "picking pennies and dimes in front of the steamroller", for a reason... when things go wrong, they go WRONG.
 
Hi Norm,

I think you are on the right track thinking wise.

At the end of the bull market I was geting into stocks that were rocketing up---Ebay, Amazon etc. etc. (I liked them because they were moving away from my buy point very quickly). If the stock turned on me before I got a breakeven stop I cut the trade. (I was in some stocks for less than 45 seconds). If I got a breakeven stop then I turned off the computer and walked away. I then checked it every evening and used trailing stops to lock in a profit. Brain dead simple: When I lost, I lost $20---when I won, it was open ended. It worked very, very well.

You might read How I Made $2,000,000 In The Stock Market and Wall Street, The Other Las Vegas by Nicolas Darvas. Also check out William O'Neil's CANSLIM ideas, though O'Neil suggests cutting a loss at 7%, (Darvas cut a lot of trades if it was down 1/8 point). Also read about trader named Dan Zanger.

There is a great quote, which I will probably misquote, that says "It's not about winning or losing, it's about how much you make when you are right and how much you lose when you are wrong"---I think it was said by Soros.

Hope the above is useful to you.

Darvas2
 
Quote from ddunbar:

Is it possible to reduce risk to zero? Of Course.

Jump into a time machine. Go forward 5 to 7 years. Print out daily charts for S&P500, Eur/USD, Oil. (You have to print it out because too date all forms of electronic or digital media cannot survive the time warp.) Come back to present and trade away. But don't get too greedy or take on too large of a position or the future will be in flux.
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Been there, done that.
 
Quote from eusdaiki:

I dont think arbitrage is 0 risk. They call it "picking pennies and dimes in front of the steamroller", for a reason... when things go wrong, they go WRONG.
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No it is not 0 risk.
There're a lot other non-strategy reasons you may lose money, fat-finger, silly mistakes and so on. They are also risks.

But it should be the safest (least risk or come close to no risk one) way to trade, if you care to win every trade.
 
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