Archives of “maximum loss” tag

rss

Cut Losses Short

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

Cut losses short is the sister rule to the let profit run, and is usually just as difficult to implement. In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you this trade is a loser and I will exit before it gets any bigger. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.

If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting Loser at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.

EXIT in Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #

exit_strategy1Exit– The exit is critical to being a successful trader. Let your winners run and your losers run out quickly. Two factors determine your exit, the Target and the Stop loss you have set on entering the trade.

1. The Target is determined by the type of market and the trading history of the stock.

2. If the trade proceeds in your direction move the Stop loss keeping it tight.

3. It the trade continues to move, you may want to take your money off the table!

4. Profits should be taken before reaching a S/R. SO WHAT if it continues to run after you left!

5. Take Profits quickly and often! And remember discretion is the better part of valor.

6. The two most important factors in determining the Stop loss are the last S/R and providing enough margin for the trade to be successful. You must balance these against each other.

7. The Stop loss can be predetermined by your maximum loss limit but understand a small loss limit can positively impact your probability of success.

8. I must balance courage and common sense when staying in the trade. The money may be better used in another trade.

9. Remember small losses are the key to success in an environment where you may be wrong greater than 50% of the time.

10. Don’t give back, remember you can always get back in!

11. Don’t change my rules and therefore my settings.

Business Plan and Discipline

  
  Education
#  #  #  #  #  #  #  #  #  #  #

Trading is one of the most difficult profession, winning traders have business plans.  They have set of rules and guidelines to help keep their ship sailing in the right direction. Business plan in trading would cover time spend to study  markets and trading, techniques and strategies to focus on, systems to use,  expenses involved, maximum loss per trade, maximum drawdown, objectives and goals,  etc. Best traders keep revisiting there business plans and change them when necessary, improving it with each iteration.  Last but not least, the most important trait you would see in all successful traders is discipline. Without discipline no trader could be competent, because knowing in not the same as doing. Competence means that one has progressed beyond knowing what to do, to doing what one knows. Discipline makes trader competent.

Psychological Mindset!

  
  Education
#  #  #  #  #  #

mindset1

Approach the market like a robot. Emotionless and effective!”

 Understand your maximum loss
 Understand it’s OK to take a loss

 Don’t become emotionally attached to your trades
 Take adequate position sizes
 Be in total control

Your psychological mindset is one of the most important ingredients to your success in the market.
Be disciplined and you will put yourself ahead of the majority of other traders/investors.

My Personal Trading Rules

  
  Education
#  #  #  #  #  #  #  #  #  #

  • Turn off the news.

  • If you’re not feeling well for whatever reason, take the day off.

  • Feeling overly confident? Decrease your size.

  • Waffling on a trade? Pull the trigger! The hardest ones are usually winners.

  • Resist the urge to take off half when a trade is going your way.

  • Have a target in mind for every trade. Exit when price approaches that level.

  • Support, resistance and targets are ‘areas’, not specific prices. Give them some leeway.

  • Trade in the direction of the Cumulative TICK.

  • Unusually strong/weak Cumulative TICK? Increase your size.

  • Use mental stops. Adjust your stops based on the current volatility.

  • Establish a total maximum loss you’ll take in one day and stop trading if that’s hit.

  • Be conscious of your self-talk. Maintain a positive inner dialogue with yourself.

Go to top