Rule #3 – Never, ever, ever lose more than 10% on any single trade.
Traders, finance professors, and common sense all say that you should never let one sour apple ruin all of the other apples in your basket! Picking 9 stocks that gain 10% will be a waste of time if your 10th stock loses 100%, so DON’T LET THIS HAPPEN TO YOU! Having 9 stocks that gain 10% and one stock that loses 100% still results in a net LOSS of 1%!
The easiest way to follow this rule is to place a stop-loss order on your stocks as soon as you buy them. If you buy IBM at $100 a share, then immediately place a stop loss order at $90. This way you will be able to sleep at night and not have to worry about a market crash erasing more than 10% of your portfolio value in any given day, week or year.