It has often been said that there is only two ways to get hurt really bad on a stock trade, getting caught in a "death spiral" by not using DTM: Decisive Trade Management in way of stop loses and having a stock halted on you. Halts you have zero control over. Death spirals are of your own making if you do not practice use of stop loses.

Very simply stated Decisive Trade Management is keeping a stock form moving to far against you when trade goes bad. It is not impossible to have 5 or 6 out of 10 trades lose money and still be profitable for net of total 10 trades. What you must do is keep your loses small and manageable and try to maximize you winners. This is done with proper use of Trading Stops and a strict discipline in using them.

Capital Preservation

It is my firm belief that capital preservation is one of, if not single most important thing a trader has to concentrate on. It is also my belief that it is always better to error on side of safety or caution, in general this all comes under DTM: Decisive Trade Management.

Stop loses and discipline to use them are part of DTM

When you enter a trade, you should have both a possible profit figure or gain that you hope to obtain and a downside loss that "you" are comfortable with if play turns against you. Only "you" can make that decision as to what these limits are. You are only one that can determine you risk tolerance and ability to absorb loses on an individual trade. Factors on which these limits are determined include amount of money you have in your account, your experience and knowledge of particular stock, news or events affecting trade and over all market conditions and possibly others. As an example, a trader trading a $250,000 account is more then likely better able to take a $2.00/shr hit on a stock then trader trading a $25,000 account. Some traders will consider just how well they may have done on a previous trade or number of trades and let stock run a bit more against them if they have already made a few good trades or if they need to make up for a bad trade or two. This is very risky. I personally don't like to see risks taken in direct relation to previous trades. I would much rather see a plan that is in effect straight across board. This goes along with my thinking that ever trader should have a trading plan and then you work your plan. (See Trading Plan: Everyone Should Have One) But human nature what it is, I'm sure balancing trades against one another is probably being done all time.

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