Archives of “cut losses” tag

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Paul Tudor Jones – 60 Minutes Interview

  
Education, Video
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Jones is considered one of the best traders in the business for one main reason: CONSISTENCY!He has produced positive returns for 25 straight years! I don’t know the exact number of years, but you get my point. The fuel behind his consistency is his discipline, specifically his ability to manage risk and cut losses.

Besides his tremendous success as a trader and a hedge fund manager, what makes Jones an even bigger hero in my view is his philanthropy. I love the phrase “The secret to living is giving” and Jones truly exemplifies this quote. In other words, what’s the point of being successful if you never give back to others? As Jones says in this 60 Minutes interview: “You find your joy in life through service and sacrifice.” Enjoy the video!

 

Cut your losses and let your winners ride

  
  Education
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This quote is the perfect corollary to Livermore’s. Just as he preached “sitting”, letting your winners ride is the same idea. If you have on a position and it’s working, let it make you money. Don’t cut it prematurely for the sake of booking a small profit. Don’t get scared and exit on the first reaction, when all of your trading rules dictate staying in. If it’s a winner, and it’s working, then let it ride. Winners are good—embrace them.

The important flip side is how to treat losing trades. The first lesson is that losers have to be cut at some point.  Otherwise, a losing trade can keep eating away at your P&L, undoing the profits from any winning positions. If you cut losses at a pre-defined level, then they stop—and presumably your wins can be larger than your losses.

The math behind this is compelling. If you assume that your average winner make 1.6x what your average loser loses, then you only need to be right 40% of the time in order to make money consistently. By keeping the leash short on your losses, then you can let the math of statistical expectation work in your favor. Cut losses and let your winners ride.

There is another aspect to this. A loser isn’t just a trade where you get stopped out at a pre-defined loss limit. Imagine a trade that isn’t making money and has just been languishing on your books—this is also a loser. Cut it, free up financial and mental capital  and move on.

Day Trading Starting Out

  
  Education
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1• Don’t Mixing up Apples and Oranges
2• Don’t’ Winning 7 trades and LOSING ALL Gains on the Next 3 trades
3• When PREMISES FAIL, EXIT TRADE
4• 70% Consistency = 7 out of 10 trades
5• Be BORED = APATHY = EMOTIONAL DETACHMENT
6• DON’T WORRY ABOUT MAKING MONEY
7• Pauses in your Trading. Putting oneself into a position where defeat is impossible.
8• Determine Your STYLE
9• Stops based on type of Trade and Premises
10• Expect to make mistakes
12• Volume is KEY
13• Those who can recognize PATTERNS and Keep an OPEN Mind Will Succeed Faster – The ability to ADAPT – The Ability to REACT – The Ability to Admit Defeat Cut Losses Fast

Trading Wisdom

  
  Education
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Trading wisdom“The trend is your friend” – perhaps the best known trading adage of all time, it is meant to remind traders to always identify the prevailing trend, and never to trade against it, but rather wait for retracements and then enter trades in the direction of the trend.

“The market can stay irrational longer than you can stay solvent” – The way the market reacts to certain news or events may not seem rational at times, but there is no sense in trying to fight the market – it moves where it moves and does not care one bit about your opinion.

“A fool and his money are soon parted” – If you are not smart about where you put your money, you will most likely lose it.

“The trading rules I live by are: (a) Cut losses, (b) Ride Winners, (c) Keep bets small, (d) Follow the rules without question, and (e) Know when to break the rules.” – Rules are important, but following them blindly does not necessarily lead to success. Know which conditions produced those rules in the first place, so that when the conditions change, the rules can too.

“Amateurs Focus On Rewards. Professionals Focus on Risk.” – Experienced traders think first about how much they can lose on a trade, base their calculations on that, and then see if they are happy with the potential reward the trade offers. Novices usually do the opposite, blinded by the allure of quick riches.

Mastering Impulse and Fear

  
  Education
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The Trader/Subscriber

1. When what I am trading is not moving, I need to get better at sitting on my hands. Something in me keeps pushing me to pull the trigger — and it often wins.

2. For every trade, I need to place my stop at the “If the price gets here, I was wrong” location and no closer. If the size of that stop is just too scary, I need to pass on the trade. This is the way he sets his stop.

This is  our response to this Subscriber

I think trading live for you is important. Though good for learning methodology, learning psychology does not happen when trading simulated. Different worlds. When risk enters the picture, our hidden assumptions about uncertainty comes to light — if you’re looking for them. In your scheme this is how you are discovering your placement of stops from what I can see. They appear to be a mixture of standard textbook knowledge of stop strategy and your emotional reaction to them.  (more…)

49 Trading Rules for Traders

  
  Education
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  1. Usually they liquidate the good trades and keep the bad ones. Many traders don’t realize the news they hear and read has, in many cases, already been discounted by the market.
  2. After several profitable trades, many speculators become wild and unconservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
  3. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
  4. Some traders try to “beat the market” by day-trading, nervous scalping, and getting greedy.
  5. They fail to pre-define risk, add to a losing position, and fail to use stops.
  6. They frequently have a directional bias; for example, always wanting to be long.
  7. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market in too short a timeframe.
  8. They overtrade.
  9. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system.
  10. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
  11. Many traders break a cardinal rule: “Cut losses short. Let profits run.”
  12. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.
  13. Often traders have bad timing, and not enough capital to survive the shake out.
  14. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.
  15. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.
  16. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
  17. Too many traders are underfinanced, and get washed out at the extremes.
  18. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.
  19. Trying to trade inactive markets is dangerous.
  20. Taking too big a risk with too little profit potential is a sure way to losses. (more…)

Ed Seykota-Quotes

  
  Education
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If you can’t take a small loss, sooner or later you will take the mother of all losses.

There are old traders and there are bold traders, but there are very few old, bold traders.

Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.

I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.

The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance.

Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.

I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. (more…)

Trading Wisdom

  
  Education
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“The market can stay irrational longer than you can stay solvent” – The way the market reacts to certain news or events may not seem rational at times, but there is no sense in trying to fight the market – it moves where it moves and does not care one bit about your opinion.

“A fool and his money are soon parted” – If you are not smart about where you put your money, you will most likely lose it.

“The trading rules I live by are: (a) Cut losses, (b) Ride Winners, (c) Keep bets small, (d) Follow the rules without question, and (e) Know when to break the rules.” – Rules are important, but following them blindly does not necessarily lead to success. Know which conditions produced those rules in the first place, so that when the conditions change, the rules can too.

“Amateurs Focus On Rewards. Professionals Focus on Risk.” – Experienced traders think first about how much they can lose on a trade, base their calculations on that, and then see if they are happy with the potential reward the trade offers. Novices usually do the opposite, blinded by the allure of quick riches.

Cutting losses

  
  Education
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cuttingloss

There is one big difference between traders, who make money and traders who don’t. It is called risk management. Even if you blindly pick your stocks, in the long-term you will make money as long as you cut your losses short. Add to risk management a proper equity selection model and then you are in top 5% in the world. The 5% that actually make money, consistently. This is the biggest secret of successful traders – cutting losses short. It saves capital and it saves your piece of mind.

If you browse on the internet, you will find thousands of articles that preach that losses should be cut short. It is well known fact and yet you’ll be surprised how few people actually utilize it, even those who write about it. Words are free. You can say whatever you want. Many people don’t practice what they preach and this is why the biggest edge someone could have is called discipline.

There are two types of traders: the ones that cut losses short and the ones that lose everything and go out of business. If you can’t define your risk in advance and most importantly if you can’t accept it, you should not be trading at all. Reading about cutting losses short will never be enough. It is human to believe that you are different and that you know better and that it will never happen to you. You have to experience it to realize it. It is part of the learning curve. I knew about this rule long before I committed serious money to trading and yet I didn’t practice it until I had my portion of outsized losses. Today, the thought of how and where I’ll exit a trade, is the most important.

I know that there are many people who preach that they don’t use stop losses and yet they are successful. Well, if they are successful doing that, then they are not really traders. They are investors and they limit their risk by hedging, which is a whole new chapter.

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