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For a Short Sell: After thirty minutes, set a new entry point 1/16 below the low for this day. Also, set a new ISP to be 1/16 above the high for the day. If, after 30 minutes, the stock then can make a new low, the weakness shown by that gap is real. |
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Assessing risk in your trade is not difficult. You know the entry point (plus slippage) and you know where you set your IPS. The difference is the risk. The problem is in managing risk. You must pull the trigger when your IPS is hit. You must not second-guess, you must not wish, you must not hope, you must not whine and cry. There will be hundreds or thousands of good trades in the future. Let this one go! |
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There are three things you must never do: Jump out of an airplane without a parachute, vacation in Chernobyl, or fail to execute at your IPS. All can be very fatal to your future! |
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Preserving your capital is more important than making a profit. Wow! Read that again because it is so important. Over the years, the authors have seen so many fine people destroy their financial dreams because they forgot that one message. They got into just one trade that turned against them, they wouldn't get out because "they just knew it would turn around," and they spiraled into the ground. Or they had a few losses in a row, decided to "double the bet," had a few more losses in a row, upped their ante again, and lost it all. |
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All you want to do is to preserve your capital so you can keep trading. That means sizing your positions in such a way that they are small enough that an extended series of losses will not "wipe you out." You also want them large enough that you realize material benefit from profitable trades. |
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The study of money management consumes the attention of many industry professionals. The subject can get quite complicated with intricate mathematical algorithms and time-consuming real-time capital allocation models. But we argue for simplicity. Here is a straightforward approach to money management that has worked for many: |
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