“There is nothing more important than your emotional balance.” – Jesse Livermore
- While taking losses is always uncomfortable, Taking them based on a predetermined exit strategy takes away some of the mental pain. Cutting losses when you know you are wrong also limits the size and extent of the loss and the severe pain of watching a trade go against you for an extended period of time. The first planned loss is the best loss.
- There is a big difference between losing money and feeling like a failure and losing money and believing you will get it back. Losses are either just a planned part of doing business as part of a successful trading method or a learning experience to teach the trader that they need to get a proven trading system in place. Trading losses should be teachers not account destroyers. Always manage your risk per trade carefully.
- Trading losses that come from following a trading plan are far less painful than losses that come from a lack of discipline in trading your plan.
- Trade the right size for you and your trading account. Always trade at your present comfort level. If it makes you sick to lose $300 on a trade then you may need to risk $200 per trade. If you are okay with losing $200 on a single trade then you can step up and risk $300 on a trade. If you risk $1000 on a trade and your real comfort level is $200 in risk then your emotions and stress levels are likely to pour into your trade and cause you to exit because of fear or stress and not a trading plan. You have to trade what you can handle regardless of your belief about the certainty of any one trade.
- No one trade should ever make or break your whole trading account. If you risk only 1% or 2% of your total trading capital on any one trade then you can focus on the odds of the next 50 to 100 trades not obsess over the current one. This turns down the volume on your emotions a great deal.