SUMMARY

The graduation plan is just one of many examples of step 3 in the risk management process: risk control. You can implement this plan immediately on your first day of trading, and it will work equally as well when trading in simulation. By reducing exposure during poor performance, you are controlling your ability to preserve your business capital. One thing that is certain, there will be times when loss occurs, and this plan is designed to mitigate such loss. Now that our risk control plan is in place, Chapter 7 focuses on how to prepare for those times when periodic losses will occur.

REVIEW QUESTIONS
1. Define loss aversion and the associated risks for the trader.
2. Give an example of how a trader can practice risk acceptance.
3. Explain what is known as the trader's mind-set gap.
4. Explain the key concepts of the graduation plan method.
5. How does the graduation plan overcome the psychological and disciplinary challenges of increasing share size?

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