Here is a very, very old idea. Whenever people ask me how to reduce losses in day trading, futures, options, or once upon a time the old fashioned badla, I always used to be stumped.
My logic was – if you do not know the downside, any business is too risky, is it not?
The most important part of any business is to know the risk, quantify it, find the price for transferring it and then going about doing the business. If you cannot quantify the risk, the risk is too much.
Like Warren Buffet says risk comes from not knowing what you are doing. That is risk.
So what do I do when people ask me this simple question? I tell them the story of Yudhishtir from Mahabharat. He was a super man in honesty and behavior. However, even he could not control himself in a gambling den, so as simple, normal human beings we are doomed, are we not?!!
So I tell the people, I do not know how to increase your profits in speculation, but I know how to reduce your losses in speculation. In fact I can reduce your speculation losses to NIL.
Simple, do not speculate. Surely I cannot increase your profits, but I can reduce your losses dramatically. QED.
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