In addition to being a promiscuous trader, I am a glutton. Not only do I trade too often, but I risk too much of my equity on each individual trade. Perusing my trades from last year, I noticed that eighty-percent of my losses came from about 10% of my trades. It was not that these trades were placed in volatile periods or held for longer than my typical trade but that they represented huge chunks of my equity; Two trades were actually my entire stake!

I believe I do this — stake too much — because I often believe opportunities to be ephemeral; I want to capture profits before my edge disappears. Sometimes, the opportunity may truly be fleeting and should be quickly seized, but the associated mental sloppiness comes at too high a price; It makes me act impulsively.

Furthermore, I sometimes think “well…this could go to point X for Y% return and that would be Z dollars”; This is the antithesis of rationality and discipline. Yes, the asset could move to point X; It could also move to point -X; It could also move to point -2X. I get risk blind when the profit potential is glaring and risk blind people are craps players.

Eventually, I will use more sophisticated methods to quantify risk and lower it appropriately but for now, I am going to intellectually cop out and choose to implement yet another simple rule: Assume each trade is going to result in a 100% loss and limit each trade to 5% of my capital.