Module 3: Money Management (Done)

Question 1

What is the 1% rule?

Answer 1

• For stocks valued between $20 - $50, stop orders will never exceed more than 1% of the stocks value
• For example, if you are trading a $33 stock (entry price), your stop would be $32.67 (if you are in a long position)

Question 2

What is the $0.50 rule?

Answer 2

• For stocks valued between $50 - $200, stop orders will never exceed more than $0.50 of the stocks value
• For example, if you are trading a $67.23 stock (entry price), your stop would be $66.73 (if you are in a long position)

Question 3

What is the $1.00 rule?

Answer 3

• For stocks valued over $200, stop orders will never exceed more than $1 of the stocks value
• For example, if you are trading a $304 stock (entry price), you stop would be $303 (if you are in a long position)

Question 4

What is the DAILY RISK = DAILY GOAL rule?

Answer 4

• This rule states that your risk total never exceeds your daily goal
• If your goal is $100/day, your risk is not to exceed $100/day

Question 5

What are the rules pertaining to risk total per trade?

Answer 5

• You are never to risk more than half of your daily goal in one trade
• If your goal is to make $100/day, never risk more than $50 per trade

Question 6

What does David Green mean when he says you can only have TWO MAX LOSSES PER DAY?

Answer 6

• If you lose two of your max losses in trades for the day, you are done trading for the day
• If your goal is $100 and you lost $50 on two trades, you are done for the day

Question 7

What does it mean to trade in 100 share increments?

Answer 7

Most major platforms only let you buy in 100 share increments. You can only buy shares in the amount of 100, 200, 300, etc.

Question 8

Describe important principles with respect to stop loss orders.

Answer 8

• Principles for stop loss orders are the same regardless of the trading size
• Despite this, if you are trading 400 shares, you are risking 4x as much as you would be with 100 shares

Question 9

What does P&L mean?

Answer 9

P&L (profit and loss) is the change in cash flow over the course of the day’s trades (for day trading).

Question 10

What is the 20% rule?

Answer 10

• If you reach your daily goal and decide to keep trading, you must stop for the day if you give back 20% of your total profits
• If you get to $150, you must stop if you give back $30
• If you end up making $500, you must stop if you give back $100
• Money management is the most important thing when it comes to being a successful day trader

Question 11

How many shares should you be trading?

Answer 11

SHARES PER TRADE = RISK PER TRADE / RISK PER SHARE