The Seven Percent Alert
Risk Control Procedures for Successful Online Stock Trading
|The 7% Alert applies to anyone who experiences a series of losses totaling 7% or more of their total account value in any one month. Reaching this level of loss signals that it is time to temporarily step away from the stock market for a planned time-out. You should close out all positions, and cease trading for a period of one to four weeks. This time should be spent re-examining your trading methods, the markets, and your personal strategy to determine what is causing the losses.
The RightLine Risk Control System limits stock losses that occur one at a time by setting a Maximum Risk Percentage for each trade. The Seven Percent alert limits the combined individual losses to a reasonable, planned amount. This minimizes your overall losses BEFORE they get large enough to inflict serious damage. Taking a break from the markets allows time to find out why the losses occurred without having your thinking clouded by concerns about current positions.
Remember, every 50% loss began as a 5% or 10% loss. Having the courage to take a small loss quickly is the only protection you have against the possibility of even greater losses.