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.