1. Managing Trading Risk

2. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options Seminars are provided to you for educational purposes only. No information presented constitutes a recommendation to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. Pro Market Advisors do not offer or provide any opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objections, risk tolerance and liquidity needs. For more information please visit our website: www.promarketadvisors.com

3. HOW TO MANAGE TRADING RISK How Do You Choose? GAIN SCENARIO A. $700 B. 80% chance of $1000 LOSS SCENARIO A. $700 B. 80% chance of $1000

4. HOW TO MANAGE TRADING RISK How Do You Choose? GAIN SCENARIO A. $700 B. 80% chance of $1000 LOSS SCENARIO A. $700 B. 80% chance of $1000 EXPECTED $700 gain $800 gain $700 loss $800 loss ✔ ✔

5. HOW TO MANAGE TRADING RISK Why Protect Your Trade? Risk Management moves you from emotion to discipline Risk Management allows for more losses Risk Management requires an understanding of technical analysis Risk Management starts with stock selection Risk Management is non-negotiable

6. HOW TO MANAGE TRADING RISK Mental Preparation Recognize that risks exist which will result in losses Accept the fact that the risks are neither fully identifiable nor quantifiable Develop and execute with discipline a plan to protect against these risks

7. HOW TO MANAGE TRADING RISK Mental Preparation There is nothing wrong with a risk taker taking a hit provided one declares that one is a risk taker rather than that the risk being taken is small or nonexistent. Characteristically, blown-up traders think that they knew enough about the world to reject the possibility of the adverse events taking place: There was no courage in their taking such risks, just ignorance...They all made claims to the effect that “these times are different” or that “their market was different,” and offered seemingly well – constructed arguments (of an economic nature) to justify their claims; they were unable to accept that the experience of others was out there, in the open, freely available to all, with books detailing crashes in every bookstore. Nassim Nicholas Taleb, (Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets)

8. HOW TO MANAGE TRADING RISK Basic Steps Identify the market and segment trends Identify stocks within the trends Identify your entry price Identify your stop price Calculate your position size Execute your opening trade and your stop order

9. HOW TO MANAGE TRADING RISK Basic Steps Identify the market and segment trends Identify stocks within the trends Identify your entry price Identify your stop price Calculate your position size Execute your opening trade and your stop order Determine overall market trends ($DJI, $SPX, $NDX, $RUT, $MID) Create a Basic, Fundamental and Technical screen

10. HOW TO MANAGE TRADING RISK Basic Steps Identify the market and segment trends Identify stocks within the trends Identify your entry price Identify your stop price Calculate your position size Execute your opening trade and your stop order Moving Average Gap Role Reversal Candle Patterns HCOLHCOL HOCLHOCL

11. ENTRY and EXIT Gaps Gap

12. ENTRY and EXIT Role Reversal

13. HOW TO MANAGE TRADING RISK Basic Steps Identify the market and segment trends Identify stocks within the trends Identify your entry price Identify your stop price Calculate your position size Execute your opening trade and your stop order Calculate your Risk Amount ex. $100,000 account; 2% x $100,000 = $2,000 Risk Amount Calculate your Risk Per Share (Entry Minus Stop) ex. Buy at $45 – Stop at $43 = $2 Risk Per Share Position Size = Risk Amount / Risk Per Share ex. $2,000 / $2 = 1000 Shares

14. Buy XYZ stock at $45 and protect against loss with a fixed stop below $43 Buy at $45 Sell Stop at $43 HOW TO MANAGE TRADING RISK Protect with a Stop Order

15. HOW TO MANAGE TRADING RISK Protect with a Stop Order Buy XYZ stock at $45 and protect against loss with a fixed stop below $43 Order Type: Sell stop Condition: Price at or below stop Execution: Sell the stock

16. The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait. G. K. Chesterton (1874-1936), Orthodoxy (1908)

17. Managing Trading Risk