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 I knew 9 years ago the key to success in the markets was taking small losses and never taking a big loss.

But I didn't repeat the thought for hours " I believe the current trade that I am in will be a loser and a big loser at that"

I didn't repeat that thought for hours so I have been taking big losses and wiping out accounts for 9 years 

For more than 9 years since 2008

 Whenever you enter a trade, it must begin to go your way immediately (within or 3 minutes at the most), or else you get out immediately -- as close to break-even as possible, often with either a 1 - 2 tick gain, or a 1 - 2 tick loss

 I expect my current trade to be a losing trade and so will close it out if it can't immediately prove otherwise

 taking small losses is THE most difficult thing I find. I can go for weeks taking lots of nice steady profits, then somehow I take a loss of 25% of the account !! WHY - I am still trying to work this out, part of it is greed and hoping that it will come back

 take the loss at the stop position and lick your wounds. There will always be another day to day trade..

This point can't be stressed enough:- YOU WILL GO BUST IF YOU DO NOT LEARN TO TAKE SMALL EARLY LOSSES DURING TRADING RATHER THAN LETTING YOUR LOSS INCREASE IN THE VAGUE HOPE THAT THE MARKET MIGHT 'TURN ROUND'.

 Most traders focus only on winning, on making the big trade. It is much safer to think first about losing and how to manage and control losses. When you learn to ski, one of the first things your instructor will teach you is how to fall safely. Not knowing how to lose safely can result in catastrophic losses.

Bad losses create fear and then traders fail to take new attractive trades. A successful trader must learn to lose properly and learn to love taking small losses. Just like falls on ski slopes, this is a normal part of the game.

The following is a good sequence of steps:

1. Eliminate disastrous losses

2. Learn to lose properly

3. Learn when not to trade (look for higher probability trades)

4. Learn to ride winners

Once you master items one and two, you can focus on items three and four.

To achieve long-term success you must develop techniques for setting risk limits and dealing with inevitable losses. We must learn to embrace losses so that we can win.

 Expectation of Trade Loss

Many others have influenced my trading, but my approach to risk could be best attributed to Larry Williams and Mike Reed.

I expect every trade to be a losing trade and so will close it out if it can't prove otherwise.

Expecting to win is a great way to lose, in my opinion. It leads you to overlook analysis that should raise doubt about a trade's potential. It leads you to hold onto losing trades longer than they should be held.

Expecting to lose does not mean quickly scratching a trade as soon as it's entered. I hold the trade. I give it every chance to prove itself. But I know exactly how it should be moving if it is going to prove itself a winner, and if it's not doing that, then I'm outa there!

Some trades will be given several price bars. Others will not be trusted at all. As BM noted in his email, in those cases where I appear to have made the decision to scratch almost immediately after entry, it's because my analysis said that if this trade was going to work then it should work immediately. If it doesn't move, I'm outa there! And I'm re-assessing based upon this new information, and looking for the next available opportunity.

The end result of a pre-acceptance of risk and an expectation of loss, is the ability to ensure that my account is never shocked by large outsized losses. And in fact many times a normal loss will be scratched prior to the full stop price, for reduced loss.

Risk is contained... and a risk-aware but confident mindset is preserved... allowing me to continue to focus on the process of good trading.

That's why you should NEVER see a large loss in my trading account, or the YTC newsletter.

 1. Respect the risk in the market – if for no other reason than to save yourself from having to explain to your family where all your money went.

2. Make capital preservation your number one goal – survive to trade another day, through a professional application of risk and money management.

3. Learn with small amounts – don’t place all your life savings in the market because you probably will lose large percentages while learning.

4. Start off on a demo platform. When you’re profitable on a demo, only then should you move to a live platform. And then start off live with the smallest position size that your market or broker will allow, and gradually increase size as you demonstrate success at each level.

Manage your risk, and survive to trade another day.

 In his book, "A Short Course in Technical Trading," Perry Kaufman offers some sobering statistics on the matter. According to this veteran program-trading expert and author, "You can expect six or seven out of 10 trend trades to be losses, some small some a little larger." Yet, Kaufman says that trend-following systems are some of the best trading systems around. In other words, trend-following systems won't yield huge profits, but they'll still do better than most systems.

It will probably come as a shock to those who have spent countless hours searching for a winning system, but Kaufman makes it absolutely clear in his book that having realistic win/loss expectations means expecting losses - lots of them. He states, "As a trend trader, you should expect mostly small losses, some small profits, and a few large profits."

If it gets across this point alone,"A Short Course" is a worthwhile addition to your library. Kaufman provides an example to demonstrate a phenomenon that traders in the game for the long haul have come to learn the hard way:

 The trading record of each high-performance strategy showed numerous small losses intermixed with a variety of gains, some small and some large. The small gains and small losses tended to cancel each other. What remained were the larger gains. There were no large losses in the loss column to cancel them. We found something else that was at first a bit confusing. Sometimes the losses far outnumbered the gains. Our immediate question was, "how can we have more losses than gains in a top-performing strategy?" The answer was, of course, that the losses were tiny in comparison with some of the gains.

Whether an individual is or is not an expert trader can be determined easily by looking at the size of his or her losses. An expert's losses will all be small. An expert trader may actually have more losing than winning trades. There is nothing wrong with that. However, the fewer larger gains will more often than not outweigh the larger number of small losses.

 

 

 

 

 My life is thoughts. Either I choose my own thoughts to repeat for hours that will become my life in the future or my life will be a mirror of society and my environment's thoughts. But always, every moment of every day, my life is thoughts