Does Risk-Free Trading Exist?

Identifying Risk Factors and How to Address Them

Reducing Risk

This is the holy grail, right? Being able to trade without any risk.

I remember a scene from James Bond film Casino Royale, Le Chiffre planned on conducting a terrorist attack on an airline and profiting from selling short that airline. (Classic terrorism playbook 101…) In one scene, a militant is handing over cash to ‘invest’ in this scheme says 

“I want no risk in the portfolio”

I actually don’t know why I’m telling you this… it just always stuck with me! I guess my point is even criminal financiers want no risk… But the question remains – “Does risk-free trading exist”

Short answer = No

(for retail traders anyway, you could argue HFT tactics are almost risk-free)

So a better question becomes, “How can I reduce the risk on my trades?”

Firstly, you need to be honest and ask yourself this question.

“Am I the biggest risk factor in my trading?”

What do I mean?

Do you break rules, trade on tilt and violate risk guidelines?

If the answer is yes, then you are the biggest risk to your trading, the weak spot if you will. 

No low-risk strategy or technique can overcome your rule-breaking.

If you decide to take 10X risk on a trade just because you’re frustrated, you will always get caught out eventually…

Work on that first.

The good news is that many traders start with poor discipline, and over time craft themselves into a disciplined machine! 

(Humble brag alert: Traders Mastermind  is very good at helping you do that)

Back to strategy:

How do you reduce risk?

Textbook risk reduction strategies:

  • Don’t hold over the weekend
  • Trade liquid instruments
  • Trade small
  • Trade less frequently
  • Avoid risky strategies like selling naked options
  • Use a stop (durrr!)


Other ways to reduce risk: (real world)

  1. Don’t trade tired
  2. Don’t get involved with market conditions you know are tough to harvest edge (choppy, FOMC)
  3. Only keep the minimum amount of money you need in your trading account to trade with (so you can’t go on tilt and blow it!)
  4. Don’t spread yourself too thin – focus on one thing at a time.
  5. Stick to the plan…

Yeah, I know I’m repeating myself there with that last one, but that’s the number one way to reduce risk. 

Just sticking to your dam rules!

Today think about ways you could reduce your risk.

We all want to make as much money as possible whilst risking the least amount possible.

So if that’s your objective (ie X. )

Solve for X…