Basic Rules of Risk Management.
Never put more than 25% of a portfolio in a single stock.
Before taking a position check market conditions first and decrease size or stay in cash during period of correction and consolidation.
Always know what is your max loss is if your trade goes wrong – if position is closed at stop loss. Here is formula to determine size:
W – Winning probability (divide the number of trades that returned a positive amount by your total number of trades — positive and negative)
R – Win/loss ratio (divide the average gain of the positive trades by the average loss of the negative trades)
Kelly % – The percentage (a number less than one) that the equation produces represents the size of the positions you should be taking. For example, if the Kelly percentage is 0.15, then you should take a 15% position in each of the equities in your portfolio