TradeR:R

Sunday, October 15, 2006

The ever evolving list of risk management rules

I spent some time tonight analyzing my trades by time of day. What I've discovered is I'd be more profitable if I didn't trade in the afternoon... but I've had a few great afternoon trades so I don't want to knock out all afternoon trading. My compromise is to only trade afternoons if I've had a profitable morning.

...and since I've never published this list... now's as good of time as any.

These are rules that guide my risk management

1. If no profit from morning trades - then no trading in the afternoon
2. If no set ups by 12:30pm - then no trading in the afternoon.
3. know what my target price is before entering trade.
4. Know what my maximum acceptable loss is before entering a trade. Base this value on risk:reward of the trade at hand.
5. Only enter a trade when reward:risk is => 2:1
6. 1R is never more than 1% of my total available trading capital. If it is then decrease position size until 1R is less than or equal to 1% of my total account.
7. Do not enter a trade on the 3rd bar of a break out.
8. Scrap entry if the bar immediately following the signal bar does not trigger an entry.
9. Do not trade before 10:15 EST.
10. Do not enter a swing trade Wedensday, Thursday , or Friday of options experation week.
11. Do not trade on FOMC announcement days. Close all open positions by close of day before FOMC announcement.
12. If a trade could be considered a wash if a loss occurred… trade only if maximum data points are in favor of the trade.
13. If a loss is taken on a stock - do not trade that same stock again that day.
14. 1st stop = 1R. This is my stop loss (Never to exceed 1% of total available trading capital).
15. If I enter late for any reason (i.e. can't get filled at my ideal price) - then I should set an aggressive stop when 1st resistance is met… don't let winners turn into losers.
16. If stopped out of a position w/a loss then pull analysis level all the way up to the weekly level and work down through smaller time increments (daily, hourly, etc…) and have a good feel for what the market may be attempting before entering a new position. Do not just re-enter the same position at the same level soley on the hope that the entry timing was wrong... have a workable bias for minute, daily, weekly.
17. Don't hold over weekend.
18. If the stop slips on more than one trade in a day, STOP TRADING for the day.
19. If there are 2 losing trades in a day with one of those losses due to a missed stop and I'm down for the day STOP TRADING for the day.
20. If there are 3 losing trades in a day. - STOP TRADING for the day.
21. If I'm down $1000 or more for the day STOP TRADING for the day.

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