10 Laws of Risk Management

1. Control Share Size
Start with small share size for a few months till you get constant winnings.
Then adjust to higher share size and continue till get constant winnings.
If get confused or start losing, adjust to lower share size.
2. When in Doubt, Get Out immediately
Flats are Winners. Never mind the commissions.
3. Know when NOT to enter trade
Don’t get in if the stock goes IRRATIONALLY high or low.
- If it goes too high, it will turn back.
- If it goes too low, there might be some problems with company.
No positions before market open
- Enter only 1 hour after market opens.
Use extended time for exits (5.00-5.05pm)
No positions before major market announcements.
Avoid volatile stocks.
4. No Cost Dollar Averaging
Only for value investor
5. Don’t Overtrade
Plan your trade, trade your plan.
Define in your plan how much you want to trade in a same time period.
6. No Doubling Down
Only for gambling
Need unlimited capital size
7. Have a Loss Limit
2% of Risk Capital
Stop trading once Loss Limit have been reach and reevaluate trading system
8. Be Logical, not Emotional
Be unattached to the outcome of your trades
9. Don’t trade if something wrong with systems
Slow quotes
Jamming
- Go through checklist for tools operation condition (equipment maintenance checklist)
Sick
Thoughts distractions
- Still keep in touch with market but don’t trade
10. Be Disciplined
Have trading rules.
Have trading plan.
Review trading plan and positions.
Stick to fixed schedule for important activities.