King_Tiger wrote:1) Each risking 2% and if you have 10 positions, that's like 20% risk exposure to your equity. So how to manage total risk when you have several bets/positions in your portfolio?
I'm don't trade according to "turtle rules", so I can't give you the official c.f. the Tortoise answer
![Laughing :lol:](./images/smilies/icon_lol.gif)
, but a way to manage risk is to invest/trade in uncorrelated markets, and also to think in terms of allocations of your portfolio to cash and index funds. In your stocks, stops manage risk, diversification manages risk to some degree. There is diversification in stocks if you allocate to different sectors, and in different stocks. But for stocks, the diversification ends where the general markets' influences begin.
King_Tiger wrote:2) Several months ago, I had the unfortunate experience of seeing one of my stocks fell by 98% at the open. I haven't sold this one out because 1) it's not worth anything now and 2) I want to remind myself that there is always a risk that any one of my stocks can drop to zero tomorrow morning. But if it's not a gap down of 98%, just 10-30%, do you wait until the price comes back up a bit before selling or you just sell it straight away? From c.f.' rules in
www.originalturtles.org, it seems the answer is to wait a bit. But you never know if the price will come back up, right? What if it continues to drop? What can we do this situation?
Are you trading penny stocks? That 98% plummet would make me wonder if my portfolio selections are off. As far as whether waiting for a bit of recovery or not, this can be answered in 2 steps. First, if the stock is of questionable value and there is therefore good reason for the decline, then either you should be short instead of long or you should change your portfolio criteria. If it's a strong stock, but fast spiking down on huge volume because of some recent sentiment against it that isn't of the nature to devastate a company, you may look at that activity as fear gripping the investors. Odds are that when the smoke clears and the stock finds support, it will be bidded up. Perhaps not as fast as it went down, but certainly a bounce up after a couple of days will get you out in a better position than if you atempt to get out at the lows of the spike. What if it continues to drop? That's the chance you take. There's one type of decline that may recover, there's another that may not. To be able to better assess the situation, you have to look at volume levels, time, previous S&R and the price, as I've suggested above.
Now, this is all discretionary trading. If you have a system that you need to follow rules of, then discretionary trading may skew your system.