Avoiding Overexposure to Market Risk

Normal Exposure Is the Amount You Can Lose—Overexposure Is Disaster

Normal exposure to the market usually refers to the amount you can afford to lose in a single trade. Overexposure occurs when you're not prepared for that loss.

Here are some causes of overexposure:

• You've purchased too many shares at one time without being used to the swings and the rhythm of the stock.
• You've purchased a stock at the wrong time of day, as in the first 15 minutes, pre-market, or aftermarket, when uncertainty is dangerously high.
• You're trading stocks that don't meet my stock-selection criteria.

Trading Consistently in 100-Share Blocks Prevents Overexposure

Trading consistently in 100-share blocks is the fastest way to learn how to trade at a profit. By trading in 100-share blocks per trade, you're eliminating any possibility of overexposure to market risk. Of course you're also limiting your profit, but as an amateur you need to forget about trying to get rich quick. You need to keep safe from big losses.

The key to trading in 100-share blocks is having a pay-per-share commission structure. Most direct market access (DMA) providers offer this structure (I elaborate this later). When you use pay-per-share you can place several intra-day 100-share block trades, and you don't have to worry about paying $9.99 per trade as you would in the pay-per-trade commission structure.

When you pay per share you can expect to pay about 40 cents to a dollar per trade. To get started you need to have a pay-per-share broker and the self-discipline to never get ahead of yourself by trading larger-share blocks per trade.

Recaps on How to Avoid Overexposure

• Open an account with a pay-per-share online broker. This allows you to trade in small-share blocks and avoid overexposure to market risks. (If you're ready to only swing trade, however, then having a pay-per-share broker may not be necessary. I explain this in the swing section.)
• When intra-day trading, only trade in 100-share blocks per trade, with a maximum of 300 shares from three-tiers/different price levels.
• Never try to trade on news and economic reports. Don't try to predict what Wall Street will do. As you learn my system you're going to realize that the news is already built into our price levels. Wall Street knows the news better than you and I do, so you should just trade the charts.
• Never trade stocks that don't pass my stock selection filtering process.
• Avoid trading in pre-market and aftermarket hours, especially as an amateur trader.
• Never hold an intra-day position overnight under any circumstances.
• If you're new to swing trading, never hold a position overnight if it's on margin. (In my program I allow this only when you've totally mastered the system.)