Components of Risk
Risk has two components – Frequency and Severity. Frequency means how often you can lose. Severity means how much you can lose.
The purpose behind the SafetyNET Trading System is to reduce both the frequency of losing and the severity of loss when you do lose. Frequency, of course, deals with probabilities. Out of every 25 trades you place, how many times will you earn a profit and how many times will you lose money?
With the SafetyNET Trading System you can earn a profit on your trades even when you’re wrong and a stock that you think is about to go up, doesn't, but instead either stays flat or even drops.
This dramatically increases the odds of making profitable trades and thus reduces the "frequency" of losing.
The system also reduces the amount of money you can lose on the occasions when you do actually lose (in comparison to purchasing the stock outright). As a result, the potential "severity" of losses is reduced, as well.
For example, on the day this was written you could place a trade that would allow you to make a 25% annualized profit if a stock you thought was going to go up actually went down 5% instead. At the same time, you would not lose any money on that trade unless the stock went down over 25% and stayed there for 2 years or more!