The following quote is right on. It supports what I've been saying on this forum for months. Individual trades are not about making money. They are about managing losses.
-Dial
-Dial
Quoting Boris SchlossbergDislikedMost traders lose because they tolerate their losses. They allow positions to move hundreds of points against their entries, they add to losing positions and more often than not they allow one bad trade to wipe out many trades worth of profits.
Trading is not the art making money. It is the business of not losing money. That may sound simplistic, but in order really understand trading you must accept the fact that wins are often a matter of luck but losses are strictly a question of skill. That is why once the trade moves in our direction by 50% of our risk we move the stop to break even and take some money off the table. If we get stopped at break even and the trade then goes on to made oodles of cash, so be it. We move on and look for the next good idea.
Let us demonstrate to you in very simple terms why capping your losses is so important. Two scenarios. Scenario one you are in a short term day trade with 30 points of risk. It moves in your direction by 15 points then stalls. You place the stop at breakeven and it bounces back and takes you out of the market. Scenario 2 is the same trade except this time you hold your stop 30 points back and refuse to budge. You are either going to make your target or you will get stopped you tell yourself. Surprise, surprise, you get stopped out for –30. But here is the kicker. Suppose you wanted to make 30 points by end of that trading day. Under scenario 1 you would only need to make 30 points in a trade to reach your target. Scenario 2? You would have to make DOUBLE – 60 points to reach that same target. Why? Because you would have to make up the 30 point loss before you could even begin to think about making profits. Repeat this dynamic hundreds of times over a year and you start to appreciate the fact that profitable trading has far more to do minimizing losses that any other factor and therefore the most successful practitioners of the craft are some of the most intolerant people on earth.Ignored
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