It is very interesting to note that the forefathers of technical analysis, unlike many snake oil salesmen of today, while espousing the benefits of technical analysis, went to great lengths to warn future chartists of the many dangers inherent in charting, such as the desire to be right.  Schabacker, in his classic Stock Market Profits, published nearly 80 years ago, writes in an eloquent prose few today can match

No trader can ever expect to be correct in every one of his market transactions.  No individual, however well he may be grounded, no matter how much experience he has had in practical market operation, can expect to be infallible.
There will always be mistakes, some unwise judgments, some erroneous moves, some losses. The extent to which such losses materialize, to which they are allowed to become serious, will almost invariably determine whether the individual is to be successful in his long range investing activities or whether such accumulated losses are finally to wreck him on the shoals of mental despair and financial tragedy.
 
 

It is easy enough to manage those commitments which progress smoothly and successfully to one’s anticipated goal.  The true test of market success comes when the future movement is not in line with anticipated developments, when the trader is just plain wrong in his calculations, and when his investments begins to show a loss instead of a gain.  If such situations are not properly handled, if one or two losing positions are allowed to get out of control, then they can wipe out a score of successful profits and leave the individual with a huge loss on balance.

It is just as important, nay, even more important, to know when to desert a bad bargain, take one’s loss and count it a day, as it is to know when to close out a successful transaction which has brought a profit.

 

The staggering catastrophes which ruin investors, mentally, morally, and financially, are not contingent upon the difference between a 5 per cent loss limit and a 20 percent loss limit.  They result from not having established any limit at all on the possible loss.

Any experienced market operator can tell you that his greatest losses have been taken in those, probably rare, instances when he substituted stubbornness for loss limitation, when he bought more of a stock that was going down, instead of selling some of it to lighten his risk, when he allowed pride of personal opinion to replace conservative faith in the cold judgment of the market place.

It would behoove each of us to remember that cup handles can and will be broken, necklines ignored for a return gaze at the head, flags folded and put away. Triangles do and will turn into rectangles; breakouts into breakdowns.  If you do not believe me, the next time you stay in a series of trades, or one over capitalized trade much longer than necessary, remember the immortal words of Edwards and McGee:

If we can learn from the charts at what points to buy and under what conditions to sell, we have acquired the basic machinery for successful trading.  On the other hand, obviously, if your buying and selling are at points which more often than not result in net losses, then it makes no difference how you divide up your capital or apply it to the market, for it will be bound to shrink until, eventually, it has all disappeared.