Over the years I’ve gone from a hobbyist market enthusiast to a semi-professional speculator (meaning I still rely on other people’s money to trade). The one thing I realize now is the most important and would have gotten me much further had I known it earlier is stops. Stops are one aspect of risk management I focus on. The others are sector exposure and overall in the market.

I used to focus completely on overall dollars in the market, and it got me nowhere. This is a strategy that minimizes loss, not maximizes gains or finds something in between. When you manage money not to loose it, that is your best case outcome- you don’t loose anything.

So I got a lot further when I realized that stops will mean your risk is the amount of the stop. I don’t really truly believe this because my belief is that the market is just a game and the banks are the house. They will shut the game down as soon as they are at risk of losing, and stops don’t matter if the market is closed for several months.

Because of my belief that it’s just a game that has always been rigged to some degree since the beginning, I have to use total dollars invested as a limiting factor. This is hard to describe because I have yet to come up with a defined rule for putting money to work in tiers up and down- a scaling in and out. This is more instinctual, and I have to listen to when I think I won’t have a another chance to buy a stock because it is the lowest it will be for the next year or two.