How good are you at minimizing your losses?
If you’re like most traders, probably not as good as you’d like.
There is evidence to suggest the “95% of all traders lose” statement frequently made around the Internet is sadly accurate according to multiple studies.
The good news is, you can have an edge above the statistics following three simple rules.
1. Cut losses early
Two or three ticks against you? Get out of that trade.
If all you do is immediately cut losses and let your winners develop, you’re already in the right direction.
2. Money is more important than pride
Profitable traders care about making money, not being proven right.
If we let our pride take the steering wheel, we irrationally cling to things, and as a result, we suffer.
No matter how strongly you believe in a trade, you can’t force your will onto the market.
So when the tide turns against you, it’s time to change strategy.
3. Trade small
As a rule, never put more than 2% of your stack into any trade.
If you put at risk too much of your stack at one time you’ll be wiped out.
It’s much harder to recover from a 20% loss. The likelihood of making those 20% back are very small.
By staying in the game, you can win in the long run.