Chapter 7
Quantifying Risk
It would cease to be a danger if we could define it.
—Sherlock Holmes
This chapter describes some unconventional measures of risk, which, if applied along with the traditional measures, will vastly strengthen your assessment of this critical aspect of investing.
Active participants know corrections are part of trading; trying to completely avoid them is unrealistic. Therefore, working towards reducing your exposure is a more attainable objective. This is easy to say, but on a steady basis, it is difficult to achieve. Even when putting aside the emotional aspects of trading, sidestepping disaster is never easy because the perception of risk held by most investors is faulty.
Since many investors subscribe to the conventional ...
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