Divide Your Trading Capital is one of the basic trading rules, and it is concerned with dividing your trading capital into equal risk segments. This is advisable as the stock prices are liable to unpredictable fluctuations, and if we keep all our eggs in one basket, adverse price movements shall result into heavy loss. On the other hand, if we have our trading capital or money in more than one stock or financial asset, adverse price movements may not affect all of them at the same time. However, adverse market conditions affecting the general market may surely affect adversely even if trading capital is divided in more than one segment. Dividing your trading capital does not mean dividing it in hundreds of parts. Experience has shown that dividing a trading capital in eight to ten equal risk segments generally work fine. With this arrangement, you may hope to get benefit of market movements.
- Trading Rules - a book by William F. Eng dealing with 50 Stock Market Trading Rules