AriKiev’s Thirty-One Basic Risk Management Guidelines

Excerpts from Trading to Win- THE PSYCHOLOGY OF MASTERING THE MARKETS By Ari Kiev Published by John Wiley & Sons, Inc.


Buy and read the full book for more valuable insights

1. Consider the risk of a trade when you enter it.

2. Evaluate the potential profitability of the trade.

3. Determine entry and exit points based on your approach to the market. If you are a technical trader you look for factors such as support levels, violation of which would trigger a sale. If you are a fundamentalist you look for factors such as reversals in the interest in the stock.

4. Establish an exit point based on the amount of profitability you want from the trade, using a number or a percent of total value of the trade.

5. Establish a set of rules about closing down your trading for the day once you reach a certain amount of loss.

6. Stay with your established discipline.

7. In highly volatile markets, be extra cautious in managing your positions, especially short positions.

8. If you are short and you see the market going down and your stock is not coming in, start buying back the stock instead of waiting for the market to continue coming in. Overcome your

tendency to keep from covering your shorts because you think the market is going to fall apart.

9. Don't fight the tape all day long. Don't keep looking for shorts when the tape is trending up throughout the day.

10. Look at each position on its own merits. Don't justify being in one stock by being ahead in another stock. Keep figuring your risk/reward ratio on each position and on each new increment

you take in stock.

11. Be satisfied with your positions if they are stretch positions. Don't always be looking to hit a home run.

12. Stay with things longer and try to get bigger, rather than trade in and out. Get bigger in your winners and lack out the ones that aren't working.

13. Try to diversify. Traders lose the most money when they are loaded up on one side of the market and making a big bet the next day. Diversity doesn't mean to hedge but to have a diversity

of ideas

14. Keep moving. Don't get wedded to your choices. Keep reviewing and renewing your choices.

15. If you're a compulsive gambler, you need to focus on a reasonable target and stop copying the big guys by swinging for the fences. If you make five thousand dollars a day consistently,

you will make over a million dollars a year.

16. Devise rules you can live by and stick to them.

17. When your Achilles' heel is exposed, admit your vulnerability. Recognize that you can't do it all yourself. When you reach your target, notice any tendency to keep trying to squeeze more profit from your trades.

18. Keep asking yourself questions about alternative strategies or reasons why stocks are moving in particular directions.

19. When stocks are closing against you, get out. You can always get back in.

20. Measure your risk/reward ratio. Compare your risk to the profit potential in a particular trade. If your trade is going well, stay with it.

21. When you add to a position consider how much risk and reward you are adding. If you are doing well, perhaps that's all you can expect for today's trade. Don't stretch your luck.

22. If you get bigger and stay longer you increase your risk in a high-volatility market.

23. When you buy a group, you increase your profitability and you reduce your risk through diversification. Increase the number of positions you take and you increase your chance for profitability.

24. Keep looking at what compels you to trade in a certain way. Is it rational from a trading viewpoint or is it merely a reflection of your personality and style?

25. If you take too many positions to cover yourself, you lose the maximum punch.

26. Remember that traders lose the most money when they load up on one side and make a bigger bet the next day.

27. Diversity is good.

28. Trade more quickly.

29. To be successful, keep moving. Don't get too attached to a stock.

30. If you are a compulsive trader who frequently blows up, control your risk by lowering your targets and being more aware of your risks. Stop swinging for die fences. When you are about to do something stupid, ask for help. Go back to making a steady $5000 to $10,000 a day and you will soon be successful.

31. Have good reasons to buy a stock. Is it at the low end of the range? Has it been upgraded by an investment house? Is die valuation of die group going up?

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