Define risk. Limit risk. Accept risk. Do it in your trading and in your life's decisions too

Author: Greg Michalowski | Category: Education

How getting Covid was a bad trading decision that just got worse

covid
In my book "Attacking Currency Trends", I speak at how traders need to define risk, limit risk and accept risk.   

The three step process does things that successful businesses do to maximize returns (or stock price).   If you are in a business, it is imperative that you try to understand and define your risk, and that you make a conscience effort to limit your risk. Once that is known, you go for it (or accept your risk).  

Trading is a business too. To maximize returns traders should focus on where they get in a trade, and why they get in a trade.  The "where" and the "why" talk specifically to defining and limiting risk.  I encourage using technical tools to help answer those "where" and "why" questions. 

For example, if the price of the EURUSD has a defined ceiling at 1.2309 from December 30, that level needs to be broken to take the price higher going forward.  On December 31, the price moved back up to retest that high. Traders who are focuses on defining and limiting risk, have a trade opportunity against that high.  

What played out on December 31 and again on January 4, is that traders chose to define and limit risk, by leaning (selling) against that high level both those days/

Those traders risked a little to have the potential to make more than a little.  On the 31st of December, the price moved down 100 pips from the 1.2309 level, and on January 4, the price moved down 60 pips from the same area. Each trade, could have been done risking only 10 pips or so with the potential for a multiple of that risk as the reward.  Nice trades.  

Does defining risk, limiting risk and accepting risk work in life decisions too? 

How about with Covid in what is a highly infectious time?

A few days before Christmas, my wife and I were texting with our neighbors. Our neighbors son, happens to also be our youngest son's roommate in Los Angeles.  Both were home for Christmas. Both practiced social distancing and strict masking in LA. They also worked predominantly from home.  

For my wife and I, we both work out of the home. One of the neighbors does work outside of the home, but mostly outside (contractor).  His wife works out of the home.  

Anyway, our neighbors graciously asked if we wanted to come over for a little holiday cheer and to play a board game.

My define risk/limit risk habit went into full alert mode. 

The initial thoughts were pure risk defining/risk limiting:

  • I don't know?  Is it worth it? 
  • These are higher infectious times 
  • We don't want to get Covid. 
  • We want to go visit our grandson in early January. Do we want to jeopardize that?
  • We have been disciplined and dodged the virus so far
Then the risk defining and risk limiting transitioned and expanded to:

  • But it's only our two families (not multi families with more risk potential). 
  • My son and his roommate are already bubbled in LA. 
  • My wife and I work at home and practice all the safety precautions.  
  • The neighbors have limited exposure too. 
  • We would mask up. 
  • We would stay 6-feet apart
  • They would open windows."

We defined and limited the Covid trade risk.   We put aside the risks from the disease and the implications, by defining and limiting the risks.   We all accepted the risk and did the trade.  

Doing a trade is one thing. Adhering to the risk defining and limiting rules is another thing.  

Our first mistake, was because we had a drink and light appetizers, I suggested the mask risk defining rule was well....not needed. I know it is hard to eat and drink with a mask on, but there are other precautions you can take to minimize the risk.  In trader talk, the stop was ignored. Bad decision.  Always follow the trade plan.    Stupid decision.

Next, the 6 foot rule was not always adhered to either.  Again the stop was ignored..  

Finally, we may have gotten carried away with game excitement increasing the virus transmission chances (high fives along with enthusiastic banter which certainly did not help to stop the transmission across the gaming table).  

I remember justifying in my mind at the time, why the trade risk would be alright, but in hindsight, I simply ignored the risk defining and risk limiting precautions that I am so well versed (and follow/preach nearly every single day).    

On Christmas, we got word one of the neighbors tested positive.  On the 26th I tested positive, my wife and son thankfully tested negative.  I have been in isolation since.  At first, I had limited symptoms.  A little head congestion.  Some feeling of being "off".  

The symptoms did get worse over the long New Year weekend with the fever heading higher for which I countered with fever reducing medication.  Fatigue, foggy head, some dry cough, lack of appetite, and digestive issues.  Oxygen levels remained strong, however, and not in a danger zone, but admittedly, the unknown and the impact is not fun.  

The last two days have seen the temperature going back to normal which is a welcome development.  There are still some other symptoms which make me cautious, but feel the worst is over.  Most of the loss has been realized (or so it seems). 

What if things were differently?    

Sometimes we do trades, ignore all the stops and risk defining levels and survive.  Other times (and I have seen this many times), traders ignore the risks and before long, make a bad trade even worse.  They may even disappear, never to trade forex again. 

In short, the Covid trade I did, could have been a lot worse.   

  • On Christmas Eve - before we knew were exposed -  we did visit with my mother in law at her assisted living home nearby.  We were masked up, met outside and stayed a good 6 feet apart at all times as we gave her Christmas gifts.  When we found out of the exposure, we had to let the home know of the exposure risk. Thankfully, my mother in law tested negative and we dodged that bullet, but what if it was different?  Would it have been worth it? I don't think so.  
  • What if my rise in temperature did not subside but continued to rise, putting me in the ICU?
  • What if we remained asymptomatic and did go visit my grandson and exposed he and my son/daughter in law to Covid?  

Now, thankfully none of those things happened, but I can't help but feel that a bad trade could have been a lot worse.  

My message is that in trading - and in life too - it is important to define, limit and then accept  risk. However, by doing the process, you are also entering a contract to adhere by the parameters you set.  Failure to do so can have dire consequences.  How dire is open ended question, but with a pandemic like Covid, you have to be very careful.  In trading the decisions can be dire too. I have seen many traders disappear for not adhering to risk defining levels. 

Overall, no sympathy for me please. This is not that time but a time to learn and knock on wood with hopes that "All's well that ends well". 

Also, let it be known, the Covid trade I made, was certainly not one of my best of 2020 and may have been one of my worst EVER.   Never again.

So if I can parallel trading with Covid, in 2021, let's all focus on defining, limiting and accepting risk in our trading and risk a little to make more than a little. 

Let's also do the same in our risk assessment toward the Covid pandemic.  That is not to say we need to lock up and never see the light of day again. However, if you can get the vaccine, get the vaccine. If you can mask up, mask up. If you can social distance, social distance.  If you can wash your hands, wash your hands, etc. 

By all means enjoy life as best as you can, but just promise that you don't ignore your stops like I/we did on that pre-Christmas game night.  It just is not worth it.   

Happy New Year to all.


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