Getty Images Humpty Dumpty could have used better risk controls.How do you control risk in the stock market when central banks flood the financial system with fabricated dollars? The U.S. Federal Reserve and the European Central Bank (ECB) have artificially pushed down interest rates and prompted demand for equities, as bond yields in recent years sunk to record lows. The Dow Jones Industrial Average DJIA, +0.70%the S&P 500 Index SPX, +0.07% and the Nasdaq Composite Index COMP, +0.01% are all at record highs. On Wednesday, the Dow closed at a record high for the 51st time this year. The first thing you need to know is that you can control risk better than any billion-dollar mutual fund, money manager or hedge fund could ever hope to. We as individual investors have a competitive advantage: We can be nimble where they aren’t. But we also must embrace that competitive advantage for it to work. There’s a three-step process to controlling risk in the stock market, given the environment we are in today: 1. Recognize and respect the risks. I outlined these in this article. The long and short of it is that the ECB is about to wind down its stimulus, which will drain money from the financial system. As the Fed has already ended its bond-buying program, the ECB’s actions will come as a double whammy. 2. Evaluate your portfolio and raise cash when and where possible. 3. Find strategies that can be managed within your time schedule, and allocate between a mix of conservative and aggressive, proven risk-control strategies.via