As I made money, I got more and more confident, and I increased the position each time. Ultimately, I put on a position where I was completely wrong. I just held it, held it, and sold it when my account was back down to 2,000. Over a five-day period, I lost everything that I had made over the prior six months. – Martin Taylor

This was Taylor’s description of how he got started in his trading. It is a telling example that almost any trader can relate to. Learning how to take small losses is extremely important to all traders, regardless of their approach. For Taylor, it took a tremendously big loss to get the point across.

The conclusions I drew from losing all my profits were: First, I didn’t know what I was doing, and second, I really wanted to know what I should be doing. I also realized that trying to make money out of big macro moves was a mug’s game. – Martin Taylor

That huge loss really shook Taylor’s confidence. He realized that there was quite a bit that he still needed to learn.

His intellect, however, often got in the way of his investing. If he was bullish on a stock for 10 reasons, he could always think of nine reasons to be bearish, which would cloud his mind to such a degree that he would end up not buying it. – Martin Taylor

Taylor is describing his boss, but most traders can relate to the idea of getting out of their own way. Given enough time to think about it, rational arguments can be made against even the most successful positions. It is important that we determine what our plan is, and then stick to that plan.

When markets are trading up strongly, and there is bad news, the bad news counts for nothing. But if there is a break that reminds people what it is like to lose money in equities, then suddenly the buying is not mindless anymore. People start looking at the fundamentals, and in this case I knew the fundamentals were very ugly indeed. – Martin Taylor

I have always been fascinated with the way that bull markets can swallow up terrible news without a pause, but bearish markets can tumble at even the slightest hint of negative news. However that factors into your trading strategy, we should remain aware of macro conditions and how they might affect our positions.

Buying low-beta stocks is a common mistake investors make. Why would you ever want to own boring stocks? If the market goes down 40 percent for macro reasons, they’ll go down 20 percent. Wouldn’t you just rather own cash? And if the market goes up 50 percent, the boring stocks will go up only 10 percent. You have negatively asymmetric returns. – Martin Taylor